Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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.

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 0.1Q, 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 120,000,000 packages per year. While the firm is inefficient, it manages to return an operating profit of $360,000,000 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.

Question: Derive the typical firm's best-response function.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Economics of Money, Banking and Financial Markets

Authors: Frederic S. Mishkin

9th Edition

978-0321607751, 9780321599797, 321607759, 0321599799, 978-0321598905

More Books

Students also viewed these Economics questions

Question

2. Why do economists make assumptions?

Answered: 1 week ago