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Air Canada and KLM compete for customers on flights among Amsterdam and Toronto. The total number of passengers (Q) flown by these two firms is the sum of passengers who fly KLM, Qk and those who fly Air Canada, Qc. Suppose that no other companies can enter the route Due to they cannot obtain landing rights at both airports. Market demand is given by:
where p is the cost of a one-way flight (in Euros), and Q is claculated in thousands of passengers flying one-way per quarter. Every airline has a constant marginal and average cost of €147 per passenger per flight.
a) Determine the Cournot equilibrium.
b) Assume both airlines receive a subsidy of €54 per passenger. Derive the new Cournot equilibrium. What is the effect of the subsidy? How much of the subsidy is passed on to the passengers?
What are the conclusions about the cost of production and efficiency in the long-run equilibrium of a perfectly competitive industry? Three conclusions regarding the cost of pr
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explain the law of demand
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Short-Term Policies Deflation is a policy of reducing expenditure with the intention of curing a deficit by reducing the demand for imports. This reduction of expenditure m
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