Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Assume an airplane companyfaces the following demand curve for monthly sales of its airplanes (pre-covid days) .The numbers are in million dollars: P = 240

Assume an airplane companyfaces the following demand curve for monthly sales of its airplanes(pre-covid days).The numbers are in million dollars: P = 240 - 2Q, where P is the price of a given airplane, and Q is the number ofairplanes demanded monthly. Each airplane uses a set of engines made by Pratt & Whitney.The airplane company pays P&W a price, Pt(in millions of dollars) for each set of engines for an airplane. The marginal cost to P&W of producing a set of engines for a given airplane is $ 20 million. In addition to paying for the engines, incurs a marginal cost of $100 million in making an airplane (i.e., accordingly, the overall cost of an airplane to the airplane manufacturing company is 120 million=20+100).

A. What is the profit-maximizing price that P&W would charge the airplane manufacturer for each set of engines, when the two companies are separate entities?

B. How many sets of engines would P&W sell to the airplane manufacturer? What is the airplanecompany'sprofit-maximizingprice of airplanes to airlines?

C. What is the airplane manufacturing company's profit? How much is P&W profit? Now add the two and report the sum. Please show all calculations clearly.

D.Is the following statement correct?"Double marginalization helps firms because itenables them to raise prices."

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Wisdom Of Crowds

Authors: James Surowiecki

1st Edition

0385721706, 9780385721707

More Books

Students also viewed these Economics questions

Question

What is the education level of your key public?

Answered: 1 week ago

Question

What are the cultural/ethnic/religious traits of your key public?

Answered: 1 week ago