Question

Two airlines compete for passengers on a one-way flight Philadelphia Orlando, FL. They differentiate their products primarily on product quality, with Firm A providing more upscale service, while Firm B operates more as an economy airline. The demand curve for Firm A's product (upscale service) is: Qa- 720-2Pa PB, Firm B has a product (economy service) demand curve equal to: QB-528-3Ps + 2PA The marginal cost for firm A is $70 per passenger, for firm B it is $40 per passenger. Fixed costs for both firms are $50,000 per flight Assume these airline firms compete in a differentiated-product Bertrand market structure. Determine: a. the prices that each airline will charge for this flight (PA and Ps) (5 ea.) b, each firm's Quantity (QA & QB) based on the prices found in a, (3 ea.) c, the profit/loss that each firm earns on this flight. (3 ea.)

Answer 1

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