Reconsider Problem 13.29, except suppose American and United take each other's quantity as given rather than taking each other's price as given. That is, assume that American and United act as Cournot competitors rather than Bertrand competitors. The inverse demand curves corresponding to the demand curves in Problem 13.29 are

a) Suppose that American chooses to carry 660 passengers per day (i.e., QA = 660). What is United's profit maximizing quantity of passengers? Suppose American carries 500 passengers per day. What is United's profit maximizing quantity of passengers?
b) Derive the quantity reaction function for each firm.
c) What is the Cournot equilibrium in quantities for both firms? What are the corresponding equilibrium prices for both firms?
d) Why does the Cournot equilibrium in this problem differ from the Bertrand equilibrium in Problem 13.29?

Transcribed Image Text:

PA = 1000-30,-- Pu 1000 0u0