In response to these complaints, the national government commissioned the competition authority to recommend steps for improving the efficiency of the airfreight market. The commission made two recommendations:

1. The airfreight services market should be opened up to competition from privately owned firms.

2. Each firm operating in the airfreight market, including AAS, should be required to pay an annual lump-sum licence fee to the government.

The airfreight market is best modelled as Cournot competition. This is because competing firms must hire aircraft and establish distribution networks before offering airfreight services. Demand for airfreight services is, P = 42 0.2Q, where P represents the price of transporting a package, and Q is the total number of packages transported per year, measured in millions of packages. At present, AAS charges $30 a package and transports 60,000,000 packages per year. While the firm is inefficient, it manages to return an operating profit of $180,000,000 per year into government revenues. The competition authority expects that after implementing the market reforms, all firms in the market (including AAS) will be more efficient. Each firm in the market will be able to transport a package at a marginal cost of $6 per package, and face fixed costs of $100,000,000 per year.

Your task The Minister for Transport has instructed you to recommend an appropriate licence fee for the airfreight market. The minister has three objectives:

1. Maximise government revenues from the licence fee;

2. Minimise the cost of airfreight services to consumers, and;

3. Increase the number of packages transported per year to at least 150,000,000.

Note that competition policy prevents the government from imposing any other form of market regulation, including price controls or quotas.

whats the appropriate license fee and how did you get to it? thanks