Question

3) There are only two fast food restaurants in a small island: David's Burger (D) and Burgers Are Us (B). Residents of the island view the hamburgers of these two restaurants as close substitutes. These restaurants compete by setting prices $P_D$ and $P_B$. The demand functions of these restaurants are: David's Burger: $Q_D = 200 - 10P_D + P_B$ Burgers Are Us: $Q_B = 200 - 10P_B + P_D$ These Restaurants have fixed marginal costs: $MC_D = 5$, $MC_B = 10$. We assume that there are no fixed costs: $FX_D = 0$, $FX_B = 0$. a) Calculate the price (P) and output of each restaurant (Q) in this duopoly model with differentiated products. b) Find each restaurant's profit. (show your work, Explain your solution). (20 points)

          3) There are only two fast food restaurants in a small island: David's Burger (D) and
Burgers Are Us (B). Residents of the island view the hamburgers of these two restaurants
as close substitutes. These restaurants compete by setting prices $P_D$ and $P_B$. The demand
functions of these restaurants are:
David's Burger: $Q_D = 200 - 10P_D + P_B$
Burgers Are Us: $Q_B = 200 - 10P_B + P_D$
These Restaurants have fixed marginal costs: $MC_D = 5$, $MC_B = 10$.
We assume that there are no fixed costs: $FX_D = 0$, $FX_B = 0$.
a) Calculate the price (P) and output of each restaurant (Q) in this duopoly model with
differentiated products.
b) Find each restaurant's profit.
(show your work, Explain your solution). (20 points)

3) There are only two fast food restaurants in a small island: David's Burger (D) and
Burgers Are Us (B). Residents of the island view the hamburgers of these two restaurants
as close substitutes. These restaurants compete by setting prices PD and PB. The demand
functions of these restaurants are:
David's Burger: QD = 200 - 10PD + PB
Burgers Are Us: QB = 200 - 10PB + PD
These Restaurants have fixed marginal costs: MCD = 5, MCB = 10.
We assume that there are no fixed costs: FXD = 0, FXB = 0.
a) Calculate the price (P) and output of each restaurant (Q) in this duopoly model with
differentiated products.
b) Find each restaurant's profit.
(show your work, Explain your solution). (20 points)

Added by Silvia D.

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