Suppose that airlines compete for customers on flights between Chicago and Los Angeles. The total number of passengers flown by thefirms, Q, is the sum of the number of passengers flown by each firm. We assume all firms are identical and face the same costs. Our estimate of the market demand function is

Q=412p,

whereprice, p, is the dollar cost of aone-way flight, and total quantity of the airlinescombined, Q, is measured in thousands of passengers flying one way per quarter. Each airline has a constant marginalcost, MC, of $149 per passenger per flight.

What fixed cost would result in four firms operating in the monopolistically competitiveequilibrium? What are the equilibrium quantities andprices?

The Cournot equilibrium quantity for each of the four firms is

q=

nothing

thousand passengers per quarter.