Suppose Air Canada and WestJet compete as Cournot duopolists for flights between Calgary and Toronto and that the market demand function is , where is the total number of passengers flying one-way between the two cities (in thousands) per year. Suppose Air Canada has a constant marginal cost and average cost of $147 per passenger flight, while WestJet's marginal and average cost is constant at $99.

a.Derive the best-response function of each firm.

b.Draw the best-response functions of each firm with y_A on the vertical axis and y_W on the horizontal axis.

c.Find the Cournot-Nash equilibrium quantities of each firm and the equilibrium market price.

d.What is each firm's equilibrium profit?

e.Draw the isoprofit curve of each firm, corresponding to the equilibrium profit levels identified in part d, with y_A on the vertical axis and y_W on the horizontal axis. Show the region on the diagram where both duopolists would be better off than at the Cournot-Nash equilibrium.

Part 2:

In the previous question, assume now that both Air Canada and Westjet have the same constant marginal cost of $147 per passenger. Furthermore, suppose Air Canada announces the quantity of passengers it plans to carry before WestJet does. Thus Air Canada is a Stackelberg-Leader and WestJet is the Stackelberg Follower. Determine the Stackelberg-Nash equilibrium quantities, price, and profits.

Suppose Air Canada and WestJet compete as Cournot duopolists for flights between Calgary and Toronto and that the market demand function is p =339 -y, where y=y, + y, is the total number of passengers flying one-way between the two cities (in thousands) per year. Suppose Air Canada has a constant marginal cost and average cost of $147 per passenger flight, while WestJet's marginal and average cost is constant at $99. a. Derive the best-response function of each firm. b. Draw the best-response functions of each firm with ya on the vertical axis and yw on the horizontal axis. c. Find the Cournot-Nash equilibrium quantities of each firm and the equilibrium market price. d. What is each firm's equilibrium profit? e. Draw the isoprofit curve of each firm, corresponding to the equilibrium profit levels identified in part d, with yy on the vertical axis and y, on the horizontal axis. Show the region on the diagram where both duopolists would be better off than at the Cournot- Nash equilibrium.