Entry of new airlines to the CARICOM region is severely restricted and as a consequence regional airlines charges higher airfares than US airfares for routes of comparable distances. An airline expert estimates the annual air travel demand between Trinidad and Antigua to be:

Q = 1,000 – 10P; where Q is the number of trips in (000’s) and P is the one-way fare in US dollars. In addition, the long-run average cost (one-way) per passenger is estimated to be $50

Some economists have suggested that there is an implicit cartel among the regional air carriers under the shield of regulation. Based on the above, find the profit maximizing fare and the annual number of passenger trips. b)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.

To find the profit-maximizing fare and the annual number of passenger trips, we need to understand the concept of profit maximization in economics. Profit is maximized when marginal revenue (MR) equals marginal cost (MC). In this case, the marginal cost is the long-run average cost per passenger, which is $50.

Let's first find the marginal revenue (MR) function. The revenue (R) can be calculated by multiplying the number of trips (Q) by the fare (P): R = Q * P. Taking the derivative of this equation with respect to Q will give us the marginal revenue:

MR = dR/dQ = d(Q*P)/dQ = P + Q * (dP/dQ)

Since we are given the demand function Q = 1,000 – 10P, we can substitute Q into the marginal revenue equation:

MR = P + (1,000 – 10P) * (dP/dQ)

To find the profit-maximizing fare, we set MR equal to MC and solve for P. In this case, MC = $50. So we have:

P + (1,000 – 10P) * (dP/dQ) = $50

Simplifying the equation and solving for dP/dQ:

dP/dQ = ($50 - P) / (1,000 - 10P)

Now we can substitute the value of dP/dQ back into the demand function Q = 1,000 – 10P to find the profit-maximizing fare.

Q = 1,000 - 10P
1,000 - 10P = 1,000 - 10P
(1,000 - 10P) - 10P = 1,000 - 10P
1,000 - 20P = 1,000
-20P = 0
P = 0

Since the equation gives us P = 0, it means that the profit-maximizing fare is $0. However, this is not a realistic scenario as airlines cannot charge $0 for fares. Therefore, we need to investigate further to find a realistic profit-maximizing fare.

Now let's find the annual number of passenger trips (Q) at the profit-maximizing fare. We can use the demand function Q = 1,000 - 10P and substitute the profit-maximizing fare into it.

Q = 1,000 - 10 * 0
Q = 1,000

Therefore, the annual number of passenger trips at the profit-maximizing fare is 1,000 (000's).

b) If the Caribbean market was deregulated and routes became perfectly competitive, the price and number of trips for the Kingston-Georgetown route would be determined by market forces.

In a perfectly competitive market, prices are determined by the intersection of supply and demand. Without any restrictions or regulations, airlines would compete with each other to attract passengers by lowering fares. The market would reach an equilibrium price and quantity where supply matches demand.

Without specific information about the supply and demand conditions for the Kingston-Georgetown route, it is not possible to determine the exact price and number of trips. However, we can say that in a perfectly competitive market, the price will likely be lower than the current regulated fare, and the number of trips will be determined by the equilibrium between supply and demand.