1. (10 Marks) Price Competition Between Coles and Woolworths: Take Two Mike. I am your father coles vs woolworths the fresh food people Let us revisit the pricing game between Coles and Woolworths in assignment one. Suppose there are only two supermarkets in Australia: Coles and Woolworths, and they sell only one product: milk. Based on historial sales data, it is estimated that the demand function of Coles milk is Q"(PC, PW) = 7.6 - 10PC + 8PW where P' is the price of Coles milk and P is the price of Woolworths milk. Similarly, it is estimated that the demand function of Woolworths milk is QW (PC, PW) = 7.6 - 10PW +8pc Coles faces the following total cost function TC(Q") = (FMP + V)Q" +1, where FMP represents the average farmgate milk price (the wholesale cost of milk before process- ing) and V represents all other variable costs per unit. Similarly, Woolworths faces the following total cost function TO(QW) = (FMP+ V)Q" +1. Instead of assuming that each firm can choose only one of two price points, in the following we assume that each firm can choose any non-negative price, i.e., PC > 0 and PW > 0.(a) (4 marks) Suppose FMP = $0.54 and V = $0.26. Determine the optimal pricing strategy for each firm. (b) (4 marks) Suppose FMP = $0.71 and V = $0.33. Determine the optimal pricing strategy for each firm. (c) (2 marks) Compare your answers in (a) and (b) with that in (b) and (e) in Q2 in assignment one and discuss the differences if there is any. Does restricting each firm's strategy domain affect the equilibrium prediction in this example