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Demand for Blue Skies' customized planes is given by P = 610,000 2,000Q. The cost of producing engines is Ce(Qe) = 4,000Qe2, and the cost
Demand for Blue Skies' customized planes is given by P = 610,000 2,000Q. The cost of producing engines is Ce(Qe) = 4,000Qe2, and the cost of assembling airplanes is Ca(Q) = 10,000Q. What problems would occur if the managers of each division were given incentives to maximize each division's profit separately? - answer Lower profits due to double marginalization What price should the owners of Blue Skies set for engines in order to avoid this problem and maximize overall profits?
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