1. A mini-case for you.

Atlantic City is considering selling a large lot of land to be developed into two casinos.They can either sell the land as a whole to Steve Win who will build his casino and then once his casino is finished, he will subdivide his land and sell the rest to another casino builder.The alternative is that Atlantic City will itself subdivide the land and sell the plots simultaneously to Steve Win and his rival.Assume that Atlantic City will choose the alternative with the highest industry profits.The estimates that the demand for gambling in Atlantic City (after accounting for the presence of the rest of the casinos in Atlantic City) is

P= 750 - 5Q

wherePis the price associated with gambling andQis the quantity of gambling (think ofPas the average amount that a typical patron will net the casino, an amount paid for the entertainment of gambling, andQas the number of gamblers).

Win's total cost of producing gambling is

TC_W=20 + 40Q_W+ 15.5Q_W²

whereQ_Wis the number of gamblers in Win's casino, and the total cost of producing gambling for Win's rival is

TC_R=10 + 50Q_R+ 20Q_R²

whereQ_Ris the number of gamblers in the rival's casino andQ_W+Q_R=Q.