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Prof. S. Madanat

Due: November 18

Two airlines serve a single market where the demand is given by P = 100 0.5(Q1 + Q2). There are no other airlines in this market. Costs of the first airline are C1 = 5Q1. Costs of the second airline are C2 = 0.5Q22. a) The two airlines act like competitors. Determine price(s), output quantities and profits in this market at equilibrium. b) The two airlines decide to maximize total airline industry profits in this market (i.e., they collude). Determine price(s), output quantities and profits for each. c) Each airline is free to set its output quantity and each assumes that the quantity produced by its rival will not change in response to its own quantity decisions. Is there an equilibrium? If so, what are the price(s), output quantities and profits for each? d) Comment briefly on which of the three outcomes you described in a, b and c is most likely.

Problem 2: In modeling transportation network flows, different assumptions can be made to describe how individuals or shippers select the routes they or their commodities will use. In class, we described two of these assumptions: user equilibrium and system optimal. The network shown below will be analyzed using each of these 2 assumptions: 1 3 2 Demand: demand is assumed to be perfectly inelastic with respect to travel time:

Q 14 = 2000 vehicles / hour

Supply: the link performance functions are given below (note that the subscripts refer to the starting and ending nodes of each link): t13 = 0.5 + 0.001x13 t 23 = 0.5 + 0.001x 23

t14 = 1.0 + 0.0005 x14 t 24 = 1.0 + 0.001x 24

a) Write down the equations that determine the equilibrium solution under the System Optimal rule and solve for the volumes and travel times. The following relationships are necessary: the objective function, the flow conservation equations, and the link performance functions. What is the total system-wide travel time? b) Write down the User Equilibrium conditions, and solve for the equilibrium volumes and travel times. What is the total system-wide travel time in this case? Why is it larger than in a)? c) Describe a transportation case (the actors, their locations on the network, their objectives, the facilities making up the links, the nodes) for the above network, in which: (i) the SO would be the appropriate assumption; (ii) the UE would be the appropriate assumption.

r The link performance functions are (in minutes, as functions of flows x, in vehicle/hr): tps = 10 + 10 xps tqs = 60 + xqs trp = 60 + xrp trq = 10 + 10 xrq a) There are 6 vehicles / hour which want to travel from node r to node s. Find the equilibrium flow pattern. Show that this flow pattern is user optimal by transferring one unit of flow from one route to the other. b) A highway improvement program adds a directed link from q to p to the network, with link performance function: tqp = 10 + xqp. Find the new equilibrium flow pattern from r to s and describe what the changes are with respect to part a). c) Compute the total system travel time in cases a) and b). How has it changed? Does this seem intuitively correct? Can you explain why this happened?

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