Question
2) Given the success of his Dallas establishment, Dr. Diamond is considering whether to expand his operations and open a second Diamond Steak Palace on
2) Given the success of his Dallas establishment, Dr. Diamond is considering whether to expand his operations and open a second Diamond Steak Palace on the Las Vegas Strip. Naturally, Salt Bae, who pioneered the concept of selling over-the-top steaks to big-spenders already has a branch of his famous Nusr-et Steakhouse on the Strip. Dr. Diamond and Mr. Bae have engaged in extensive market research and have determined that the inverse demand curve for over-the-top steaks in Las Vegas is given by P = 1,900 .05Q. Both restaurants have a marginal cost of $100 per steak and would compete on quantity. Naturally, if he were to choose to enter the Vegas market, Dr. Diamond would spare on expense in designing his new steakhouse, and would incur a fixed cost of entry of $4,000,000.
c. Show that if Salt Bae were to set his output at 18,200, then it would be unprofitable for Dr. Diamond to enter the market. Given an output of 18,200, what profits would Salt Bae earn, and what would the price of a gold-crusted steak be (5 points)?
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