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U.S.A Airways Company Losses

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Please help. I'm studying oligopoly, monopolistic; as well as Cournot, Stackelberg and Bertrand models; as well as the Nash pricing game theory.

Question:
U.S. Airways experienced huge losses for several years in the 1990s, yet it continued to operate its fleets. Why didn't U.S. Airways shut down its operations to avoid the losses?

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Solution Summary

This solution of 364 words provides two different reasons why US Airways continued to operate its fleets despite huge losses for several years, using a worked example and the Bertrand model.

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There are two possible reasons.

1) Although they are suffering losses, they may still be earning money from every flight. Consider this example.

You own a restaurant and the rent is $1200/month (i.e. $40 per day). Your revenue is $100 per day and the cost of material, chef and utility sum up to $80 per day. If you take a look at your income, you will see that you are suffering a $20 loss per day (total revenue is $100 while total cost is $80 daily operation + $40 rent = $120). But the ...

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