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Consider the pizza stores introduced in Exercise U2, Donna's Deep Dish and Pierce's Pizza Pies. Suppose that they are not constrained to choose from only
Consider the pizza stores introduced in Exercise U2, Donna's Deep Dish and Pierce's Pizza Pies. Suppose that they are not constrained to choose from only two possible prices, but that they can choose a specific value for price to maximize profits. Suppose further that it costs $3 to make each pizza (for each store) and that experience or market surveys have shown that the relation between sales (Q) and price (P) for each firm is as follows: Then profits per week (Y, in thousands of dollars) for each firm are: YPerce " (Pierce - 3) Qrience " (Pierce - 3) (12 - Pierce + 0.5PDonna), YDanna - (PDonna - 3) Orumma - (Prunes - 3)(12 - PDonna + 0.5PR). A) What prices do the firms choose in equilibrium? Round your answer to the nearest penny. B) How much profit per week does each firm earn? Round your answer to the nearest integer. C) What price do they choose to maximize joint profits? Round your answer to the nearest penny. D) What profit does each store earn when they price to maximize joint profits? Round your answer to the nearest integer. E) If one of them holds the price at the agreed level, what is the best defecting price for the other? Round your answer to the nearest penny. F) If one of them holds the price at the agreed level, and the other uses its best defecting price (which you found above), how much profit does the defecting firm earn? Round your answer to the nearest integer. G) What is the threshold value of the interest rate, below which collusion can be sustained using trigger strategies
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