Suppose That Two Airlines Are Cournot Duopolists Serving the Peoria-Dubuque

question 9

Multiple Choice

Suppose that two airlines are Cournot duopolists serving the Peoria-Dubuque route, and the demand curve for tickets per day is Q = 230 - 2p (so p = 115 - ) . Total costs of running a flight on this route are 450 + 40q, where q is the number of passengers on the flight. Each flight has a capacity of 80 passengers. In Cournot equilibrium, each duopolist will run one flight per day and will make a daily profit of

• A) $800.
• B) $225.
• C) $230.
• D) $1,600.
• E) $3,250.

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Definitions:

Reservation Price

The maximum price a consumer is willing to pay for a good or service.

English Auction

A method of sale consisting of public bidding where the price ascends, and the highest bid wins the item.

Bid

An offer of a price by a buyer to a seller for goods, services, or financial assets.

Revenue

The income generated from normal business operations and includes discounts and deductions for returned merchandise.