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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.

    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 Preview

    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 ...

    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.