Question

A sports franchise is choosing between two cities: city A and city B. The team analyst has estimated the following demands for each city: City A: PA = 90 − .001A City B: PB = 130 − .002B where A is the quantity of fans in city A, and B is the quantity of fans in city B. The analyst aalso estimates that the marginal cost in each city is $10, and the total cost is 10A and 10B in each city. a) Find the profit maximizing price and quantity if the team locates in city A. b) Find the profit maximizing price and quantity if the team locates in city B. c) What are the maximum profits that could be achieved in each city (given the cities can’t subsidize the team)?

Answer 1