Question
Qn 6. (3 points) Suppose that demand for cruise ship vacations is given by P = 1200 - 5Q, where Q is the total number
Qn 6. (3 points) Suppose that demand for cruise ship vacations is given by P = 1200 - 5Q, where Q is the total number of passengers when the market price is P.
a) The market initially consists of only three sellers, Alpha Travel, Beta Worldwide, and Chi Cruiseline. Each seller has the same marginal cost of $300 per passenger. Find the symmetric Cournot equilibrium price and output for each seller.
b) Now suppose that Beta Worldwide and Chi Cruiseline announce their intention to merge into a single firm. They claim that their merger will allow them to achieve cost savings so that their marginal cost is less than $300 per passenger. Supposing that the merged firm, BetaChi, has a marginal cost of c < $300, while Alpha Travel's marginal cost remains at $300, for what values of c would the merger raise consumer surplus relative to part (a)?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started