Deduce profit maximizing number of seats to give on this

Reference no: EM13391504

Southwest Airlines is by far the low cost carrier on the Sacramento to Los Angeles Air Travel Route. Their marginal costs are a constant $20 dollars per seat. All the other airlines (United, Delta, Alaska) have marginal costs of $100 per seat. The daily inverse demand for seats on this route is P(q) = 160 - Q, where Q is the number of seats offered by ALL airlines combined.

a. You are the Southwest marketing director and are in charge of setting prices. You know that all the other airlines with set quantity as if they were PERFECTLY COMPETITIVE. Draw your residual demand (e.g. demand left over after other airlines provide their supply of seats)

b. Derive the profit maximizing number of seats to provide on this route. How many seats do your competitors provide at this equilibrium quantity and price?

Reference no: EM13391504

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