Eagle Airlines is one of the airlines in the Caricom region. An airline expert e

Question

Eagle Airlines is one of the airlines in the Caricom region. An airline expert estimates the annual air travel demand between Trinidad and Antigua to be: Q = 1,000 - 10P, where Q = number of trips (000's), P = one-way fare ($). The long-run average cost (one-way) per passenger is estimated to be $50.
1. Find the profit maximizing fare and the annual number of passenger rips.

2. Suppose the Caribbean market was deregulated so that the routes become perfectly competitive, find the price and the number of trips for the Kingston-Georgetown route.

Your help is very much appreciated.

Explanation / Answer

Q = 1000- 10P So P= 100-q/10 And Revenue= PQ= 100q- q^2/10 So marginal revenue = 100- q/5 (derivative of revenue function). You don't give the cost function to allow the computation of marginal cost, but let's assume it's the same as LRAC= $50. $50= 100-q/5 q/5= 50 q= 250 p= $75. In a perfectly competitive market P=LRAC, so the price would be $50 and quantity would be 500.

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