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(20 points) Consider Boeing and Airbus, practically the only producers of airplanes in the world. To be honest, they are not the only producers, but
(20 points) Consider Boeing and Airbus, practically the only producers of airplanes in the world. To be honest, they are not the only producers, but the two companies dominating the market for airline production with a combined 99% of the market. Further, the industry for airline manufacturing has very high fixed costs and substantial economies of scale, which means that it would be impractical for the industry to have several competitors. If the market demand is given by p(Y )=a-bY , where p is the price, and Y = y1 + 12 is the market quantity. Also, yi represents the amount produced by each firm i for i = 1, 2 (Boeing and Airbus). The two firms have the same marginal cost equal to c. Note: for simplicity, you may feel free to let Boeing be firm 1 and Airbus be firm 2. a) If Boeing and Airbus choose their output levels simultaneously (Cournot model), solve for each firm's optimal output level, total output level in the market, market price, and each firms profit. b) If Boeing and Airbus collude to maximize the total industry profits (monopoly/collusive solution), solve for each firms' output level, total output level in the market, market price, and each firms' profit. c) If Boeing and Airbus move sequentially and Boeing is the leader (Stackelberg model), solve for each firms output level, total output level in the market, market price, and each firms' profit. d) Compare your results: Cournot vs. Collusion and Cournot vs. Stackelberg model. In each case, which model is better in regards to market efficiency
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