Andres and Julian have the only liquor licenses in a small resort town. The inverse demand for mimosas (a favorite adult breakfast drink) is given by . Mimosas can be produced at a constant average and marginal cost of $2.

a. Adam Smith once wrote, “People of the same trade seldom meet together . . . but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Suppose Andres and Julian were to follow Smith’s advice and conspire to raise prices to the level a monopolist would charge. What price should  

they agree to set in order to maximize profits?

b. Suppose both Andres and Julian each have two choices: charge the price you found in (a), or charge $1 less. Fill in the prices each may choose to charge. Then determine the profits each will earn given the choice each makes, and put them in the table below, with Andres’s profits before the comma and Julian’s after it.

		Julian
		Price from (a):	$1 less:
Andres	Price from (a):	_____, _____	_____, _____
	$1 less:	_____, _____	_____, _____

c. Draw parallels between this problem and the advertising game Disney and Warner Brothers play in Table 11.1.