Question
Hello can you please help me with this problem? Exercise 2: There are two movie theaters in the town of Artegna: Modern Multiplex, which shows
Hello can you please help me with this problem?
Exercise 2:
There are two movie theaters in the town of Artegna: Modern Multiplex, which shows first-run movies, and Sticky Shoe, which shows movies that have been out for a while at a cheaper price. The demand for movies at Modern Multiplex is given by QMM = 14 - PMM + PSS, while the demand for movies at Sticky Shoe is QSS = 8 - 2PSS + PMM, where prices are in dollars and quantities in are measured in hundreds of moviegoers. Modern Multiplex has a per-customer cost of 4$, while Sticky Shoe has a per-customer cost of only 2$.
(a)In the demand equation alone, what indicates whether Modern Multiplex and Sticky Shoeoffer services that are substitutes or complements?
(b)Write the profit function for each theater in terms of PSS and PMM. Find each theater's best-response function.
(c)Find the Nash equilibrium price, quantity, and profit for each theater.
(d)What would each theater's price, quantity , and profit be if the two decided to collude to maximize their joint profits in this market? Why isn't the outcome of this collusion a Nash equilibrium?
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