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Please explain this question:
Ques: Albatross Airlines has a monopoly on air travel between Peoria
and Dubuque. If Albatross makes one trip in each direction per day, the demand schedule for round trips is q = 160−2p, where q is the number of passengers per day. (Assume that nobody makes one-way trips.) There is an “overhead” fixed cost of $2,000 per day that is necessary to fly the airplane regardless of the number of passengers. In addition, there is a marginal cost of $10 per passenger. Thus, total daily costs are $2, 000+10q if the plane flies at all.
(A) Calculate the profit-maximizing price and quantity and total daily
profits for Albatross Airlines.
Ans: p = 45 , q = 70 , π =$450 per day.
(B) If the interest rate is 10% per year, how much would someone be willing to pay to own Albatross Airlines’s monopoly on the Dubuque-Peoria route. (Assuming that demand and cost conditions remain unchanged
forever.)
Ans: About $1.6 million.
(C) If another firm with the same costs as Albatross Airlines were to enter the Dubuque-Peoria market and if the industry then became a Cournot duopoly, would the new entrant make a profit? No; losses
would be about $900 per day.
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