Question
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."
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