Suppose that two airlines, DirectJet and MyJet, with identical cost functions are serving a regional airport with following information: Market demand: P = 1000 – 10Q Cost functions: AC = MC= $50

a. Calculate the equilibrium output and price for each airline, assuming that each airline chooses the output level that maximizes profits taking its rival’s output as given.

b. Calculate the profit level for each airline at equilibrium level.

c. Suppose that DirectJet’s costs increased to AC = MC = 100 and MyJet’s costs remained at the same level. Work out the equilibrium quantity and price for each airline.