Question
In: Economics
Sub King and Gyro Mart are the only two sandwich shops in town. Their goods are...
Sub King and Gyro Mart are the only two sandwich shops in town. Their goods are imperfect substitutes. Careful research has found that the demand function for both firms is
qi = 24 − 5pi + 2p−i .
Where i is the firm in question and −i is the opponent firm. In other words, while the price of gyros affects demands for subs, consumers do not simply buy the cheapest item, some are willing to pay more to get a sub, and some are willing to pay more to get a Gyro. The marginal cost of production for each firm is zero.
1. Find the best-response functions for firm Sub King and Gyro Mart.
2. Find the Nash equilibrium outcome.
3. What are the profits of each firm?
4. Suppose that the firms merge, so now they set prices jointly. What prices should the merged firm choose to maximize total profits? What are post-merger profits? Compare them with Bertrand profits. (Hint: Write out total profits of the merged firm and find marginal profits with respect to both prices. Then solve the resulting system of 2 equations for p1 and p2 by substituting one into the other.)
Solutions
Rahul Sunny answered 2 years agoRelated Solutions
\Sub King and Gyro Mart are the only two sandwich shops in town. Their goods are...
\Sub King and Gyro Mart are the only two sandwich shops in town.
Their goods are imperfect substitutes. Careful research has found
that the demand function for both firms is qi = 24 − 5pi + 2p−i
. Where i is the firm in question and −i is the opponent
firm. In other words, while the price of gyros affects demands for
subs, consumers do not simply buy the cheapest item, some are
willing to pay more to get a sub,...
The market for sandwiches consists of two sandwich shops operating in the local market that produce...
The market for sandwiches consists of two sandwich shops
operating in the local market that produce near identical products
and that the inverse demand for sandwiches over the lunch hour is
given by P = 280 − 2(Q1 + Q2). In this market each firm
independently produces a quantity of output, and these quantities
are then sold in the market at a price that is determined by the
total amount produced by the two firms. The cost function for Shop...
The market for sandwiches consists of two sandwich shops operating in the local market that produce...
The market for sandwiches consists of two sandwich shops
operating in the local market that produce near identical products
and that the inverse demand for sandwiches over the lunch hour is
given by P = 280 − 2(Q1 + Q2). In this market each firm
independently produces a quantity of output, and these quantities
are then sold in the market at a price that is determined by the
total amount produced by the two firms. The cost function for Shop...
The market for sandwiches consists of two sandwich shops operating in the local market that produce...
The market for sandwiches consists of two sandwich shops
operating in the local market that produce near identical products
and that the inverse demand for sandwiches over the lunch hour is
given by P = 280 − 2(Q1 + Q2). In this market each firm
independently produces a quantity of output, and these quantities
are then sold in the market at a price that is determined by the
total amount produced by the two firms. The cost function for Shop...
There are two ice cream shops, A and B, in a touristic town. Each shop needs...
There are two ice cream shops, A and B, in a touristic town.
Each shop needs to individually choose the price it charges for a
scoop of ice cream, which can be either $2, $4 or $5. Each firm
wants to maximize their total revenue from customers via an
appropriate choice of price. It is expected that
− 8,000 scoops of ice cream are purchased by tourists, who are
split evenly between the two shops regardless of the prices charged...
Consider a small town with two coffee shops, Star and Buck. If Star’s price is ??...
Consider a small town with two coffee shops, Star and Buck. If
Star’s price is ?? per cup of coffee and Buck’s price is ?? per cup
of coffee, then their respective monthly sales, ?? hundred cups of
coffee and ?? hundred cups of coffee, are given by the following
equations:
?? = 5 − ?? + ??
?? = 15 − ?? + ??
It costs $8 for both Star and Buck to produce a cup of coffee and...
A shop is selling stationery through two shops in town, and their website allows online orders....
A shop is selling stationery through two shops in town, and
their website allows online orders. They receive online orders from
two of their regular customers, each requiring glossy A3 printing
paper. Customer X needs 40 boxes, whereas customer Y needs 60
boxes.
The shop in the north side of town has 85 boxes of glossy A3
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King Solomon- The Rich Farmer King Solomon is a rich farmer in Tetebia, a town in...
King Solomon- The Rich Farmer King Solomon is a rich farmer in
Tetebia, a town in the Asou Municipal Assembly. He owns over
100,000 hectares of farmlands. However, he fears the worst might
happen and wants to do some investments to secure his future and
that of his children. He is contemplating several long term
investments he could undertake to secure his future and that if his
children. He is now 50 years old and he plans to retire in...
The sandwich shop is a restaurant that serves only one item, the ham sandwich. The restaurant...
The sandwich shop is a restaurant that serves only one item, the
ham sandwich. The restaurant serves two groups of customers,
younger adults and senior citizens. The two segments have the
following demand functions: younger adults, Qy = 5,000 –
10Py and senior citizens, Qs = 10,000 –
100Ps. The restaurant has constant marginal cost of $10
and no fixed costs.
(4)a. Write the inverse demand and marginal revenue functions
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(4)b. What...
Local chain of sandwich shops sells sandwiches in a competitive market at $5.39 each. The hourly...
Local chain of sandwich shops sells sandwiches in a competitive
market at $5.39 each. The hourly production function is:
Q = 136L - L2
The marginal product of labor function is:
MPL = 136 - 2L
If the competitive hourly wage is $14.68
a) how many employees do they hire?
b) what are the total hourly labor costs for the firm?
c) what is the total output of the firm?
d) what is the total revenue of the firm?
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