Question

Assume that the pizza market consists of two firms, Conan’s Pizza and Pizza Hut. The price...

Assume that the pizza market consists of two firms, Conan’s Pizza and Pizza Hut. The price of a Conan’s Pizza pizza is denoted by Pc and the price of a Pizza Hut pizza is Ph.Both sellers have a marginal cost of $5 for each additional pizza they make.

The demand curves facing the two firms are:

Conan (“c”): Qc = 500 - 35Pc + 20Ph

Pizza Hut (“h”): Qh = 625 - 41Ph + 26Pc

1.) Calculate the equilibrium prices.

2.) Suppose that Conan’s Pizza reduces its marginal cost to $3. What are the new equilibrium prices?

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