American Airlines and United Airlines are duopoly that faces a market demand curve that is p...

American Airlines and United Airlines are duopoly that faces a market demand curve that is p = 120 – Q. American and United both have a constant marginal cost of 20.

a. Calculate the output of each firm, the total market output, the price of each firm and the profit earned by each of them, if there is Cournot equilibrium. Show all the steps for full credit.

b. Draw the market demand curve of the duopoly, the residual demand curve for American Airlines.

c. Draw the best response functions (or the reaction functions) of both firms in a graph.

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Expert Solution

Rahul Sunny answered 1 year ago

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