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...
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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
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The marginal product of labor function is:
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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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