Assignment on Boeing Aircraft

Added on - 13 Apr 2020

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1.Boeing sells aircraft worldwide and it is one of the leading companies in the sector. Boeing faces ademand for new aircrafts given by the function qB=30-2pB. A key input for Boeing's production are jetengines: each aircraft needs exactly one engine and Boeing signed a supply contract with Honeywellestablishing a unit price pH. Honeywell faces a constant marginal cost of 5 per engine.(1.1) What is the optimal price of Boeing's aircrafts, if the engines' price is pH=5? Variable costs areassumed to be variable cost here.Price of Boeing = _________10(1.2) What is instead the optimal price of Boeing's aircrafts, if the engines' price becomes pH=13?Price of Boeing = __________11.25(1.3) Find the engines' price pH that maximizes the profits of Honeywell, the associated profits ofHoneywell and the price and profits of Boeing?a) Equilibrium Price of Honeywell = ________9b) Equilibrium Profit of Honeywell = ______40c) Equilibrium Price of Boeing = ______12.5_______d) Equilibrium Profit of Boeing = _________37.5____(1.4) The results in (2.3) constitute a typical case of: ___monopoly with vertical integration__2. In the same context of Question 2(2.1) Suppose now Boeing and Honeywell decide to merge to integrate the production of aircrafts.What are the consequences of the merger in terms of:a) Price of an engine = _______5__b) Price of an aircraft = __________12.5___c) Profits of the new Boeing-Honeywell company = ______87.5_______(2.2) Suppose Boeing and Honeywell split the profits of the new company in shares 60% and 40%. Dothey have an incentive to merge? ___No. Since the profits earned by Honeywell will reduce eventhough the profits earned by Boeing will increase.3. Two firms (1 and 2) produce good x. Each firm has a total cost function C(x)=40x. The inversedemand function is: p=640-X, where X=x +x is the total output.₁₂(3.1) Suppose firms competeà la Cournot.a)What is firm 1′s equilibrium output x1CN?________200b) What is firm 1′s equilibrium profit?________40000_____(3.2) Firms decide to form a cartel and maximise joint profits. They also decide to split equallyproduction and profits.a)What is firm 1′s equilibrium output x1CA in this case?_____200_____b) What is the profit of firm 1 from the cartel?_______40000______(3.3) Suppose firm 2 sticks to the cartel agreement. Does firm 1 have an incentive to deviate from theagreement? If yes, find the optimal deviation output and associated profit of firm 1. If not, just reportthe Cournot-Nash equilibrium output and profit found above.a)Firm 1′s output x1?_______200_b)What firm 1′s profit in this case?_____40000________c)Firm 2′s output x2?______200______d)What firm 2′s profit in this case?___40000________(3.4) Suppose the one-shot game in points (3.1)-(3.3) is repeatedfinitelymany times. Can the cartelagreement be supported as an equilibrium? If yes, briefly explain under what conditions?_____________A cartel can be supported with a self enforcing agreement under the condition thatthe Nash equilibrium quantity of total market production is higher that the total productionotherwise.___4.Five firms (1, 2,3,4and 5) produce good x. Each firm has a total cost function C(x)=x, hence thereare no fixed cost and the marginal cost is constant. The inverse demand function is: p=10-X, whereX=x1+x2+x3+x4+x5is the total output. Output choice is the key strategic decision in this industry.Firms 1 and 2 consider to merge into firm A: the resulting market would be an oligopoly with fourfirmsin which firm A competes with firms3,4and 5.Do you think the proposed merger will take place? Complete the answer.a)No. this is a typical case of_____Cournot market and in a Cour not market mergers makesense only if the resulting firm holds a gig Shrewsbury of the market. The proposed merger
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