Question

Consider two stores operating along a one (1) mile street, one at the left end and...

Consider two stores operating along a one (1) mile street, one at the left end and the other at the right end. Both stores sell a single product, which costs $10 to produce (c = $10). Transport costs for each consumer = $5 per mile (t = $5). There are N = 100 consumers spread out equally along the street. Prices are set at a point that ensures all consumers are serviced.

Assume prices are set simultaneously. The profit-maximizing price is p1 = p2 = c + t. What are both stores’ prices? And given that both stores split the market, how much profit does each store make (assume $0 fixed costs).

b. Now assumed the store on the Left moves first to set its price. The store on the Right then follows. Use the information below to determine each store’s price, the quantity it sells and

its profits (again assume NO fixed costs).

First Mover p1 = c + 3t/2 Demand 1 (q1) = [(p2 –p1 + t)*N]/2t

Second Mover p2 = c + 5t/4 Demand 2 (q2) = [(p1 – p2 + t)*N]/2t

c. In Part b, who is better off, the Left Store (1st mover) or the Right (follower)? How does the outcome in Part b compare to the outcome in Part a. Is the store on the Right better or worse off?

What about the store on the Left.

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
PROBLEM 2: Consider two stores operating along a one (1) mile street, one at the left...
PROBLEM 2: Consider two stores operating along a one (1) mile street, one at the left end and the other at the right end. Both stores sell a single product, which costs $10 to produce (c = $10). Transport costs for each consumer = $5 per mile (t = $5). There are 100 consumers spread out equally along the street. Prices are set at a point that ensures all consumers are serviced. a. Assume prices are set simultaneously. The profit-maximizing...
Consider Hotelling's model with a street of length 1; consumers uniformly distributed along the street; and...
Consider Hotelling's model with a street of length 1; consumers uniformly distributed along the street; and each consumer has a transportation cost equal to 2d, where d is the distance traveled. Suppose there are two gas stations, one located at 1/4 and the other located at 1. (a) Calculate the demand functions for the two firms. Assume that production costs are zero (so that firms maximizing profits is equivalent to firm maximizing revenue). Assume that the two gas stations compete...
5. Suppose that there are two pizzerias located at either end of a one mile long...
5. Suppose that there are two pizzerias located at either end of a one mile long Main Street. Along Main Street there is potential market of 4000 customers, uniformly spread out on the street. Each consumer is willing to pay a maximum of $21 for a pizza at their door step. To travel a distance d from the consumer’s location the consumer incurs a cost of $2 per mile. To go to a pizzeria the consumer incurs the cost traveling...
Consider a monopolist facing two types of consumers. Normalise the total population to 1. Type one...
Consider a monopolist facing two types of consumers. Normalise the total population to 1. Type one consumers are in proportion 1/2, and type two are in proportion 1/2. The monopolist has marginal cost of production c = 1/2. The two types have demand curves q₁ =1-p q₂ =1-(p/2). If the monopolist can identify the two types and can charge different two-part tariffs to different types: {A1, p1} and {A2, p2}. [All type one consumers are identical and have the q1...
Consider two firms are performing Cournot price competition in two differentiated goods markets. Firm 1 produces...
Consider two firms are performing Cournot price competition in two differentiated goods markets. Firm 1 produces goods 1, and firm 2 produces goods 2, and two market demand functions are given by q1(p1,p2) = 12 - 2p1 +p2 and q2(p1,p2) = 15q22 + 45Q . Furthermore, assume that the two firms have the same cost function such that fixed cost is $20 and variable cost is zero. (10pts) Calculate the equilibrium prices, quantities and profits for both firms. (10pts) Assume...
Most people have returned clothing or other items to stores. Acme holding company is particularly interested...
Most people have returned clothing or other items to stores. Acme holding company is particularly interested in the clothes that have been returned after the winter holidays. It requires its stores to keep records of these clothes if they cost over $75.00. Acme’s corporate office is worried about a new store (N) it recently purchased. The store seems to have a high proportion of returns compared to an established store (E) in a similar neighborhood. After the last holiday season,...
Table 17-19 Consider a small town that has two grocery stores from which residents can choose...
Table 17-19 Consider a small town that has two grocery stores from which residents can choose to buy a loaf of bread. The store owners each must make a decision to set a high bread price or a low bread price. The payoff table, showing profit per week, is provided below. The profit in each cell is shown as (Store 1, Store 2). Store 2 Low Price High Price Store 1 Low Price (250, 250) (400, 50) High Price (50,...
The following is an article from the Wall Street Journal: Wall Street Journal -- SUMATHI REDDY...
The following is an article from the Wall Street Journal: Wall Street Journal -- SUMATHI REDDY of 2 Bros. Pizza. But this is no run-of-the-mill slice; it's a "Supreme Slice." "The BIGGEST and BEST Slice we have ever made," reads the sign trying to lure passersby at the 36 St. Mark's Place location. Thrifty spenders, never fear: The $1 pizza model proliferating across the city isn't going anywhere. According to Eli Halali, who owns the 2 Bros. Pizza chain with...
1. Consider a team that can segment its customers into two distinct markets whose demands are...
1. Consider a team that can segment its customers into two distinct markets whose demands are given by                                     P1 = 25 – .0001Q   P2 = 50 – .0002Q The relevant marginal revenue expressions are MR1=25–.0002Q, and MR2=50–.0004Q, respectively. Finally, let the marginal cost be MC=5. Assuming that the team can perfectly identify members of each market and prevent them from trading with one another, find    the optimal quantities, Q1* and Q2*, and prices, P1* and P2*. Given your...
Question 1 If you are trying to make yourself as happy as you can be given...
Question 1 If you are trying to make yourself as happy as you can be given the constraints that you face, you are effectively: Select one: a. trying to find the intersection point between two budget constraints. b. trying to find the point on the budget constraint that is on the highest indifference curve. c. trying to find the point where the budget constraint and an indifference curve intersect. d. trying to find the point on an indifference curve that...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT