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Problem 3. The Los Angeles Airport Commission has decided to sell the right to operate a coffee bar at the United Airlines Terminal. Starbucks and

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Problem 3. The Los Angeles Airport Commission has decided to sell the right to operate a coffee bar at the United Airlines Terminal. Starbucks and the Coffee Bean and Tea Leaf are both interested in bidding for this exclusive right. For Starbucks the annual demand for coffee drinks is: 0,5 = 500,000 220,000P5 (where P5 is the price of a cup of Starbuck's coffee expressed in dollars) For Starbucks the annual long run total cost function is: TCs = $50,000 + $0.60,; For The Coffee Bean and Tea Leaf the annual demand for coffee is: 0.: = 400,000 200,000Pc (where PE is the price of a cup of Coffee Bean's coffee expressed in dollars) For The Coffee Bean and Tea Leaf the annual long run total cost function is: TCc = $60,000 + $0.60.: Assume that coffee is the only item being sold. A. Are there economies of scale for these coffee shops? Explain briefly. B. What is the optimal price for each of the two operators? Show your work. C. What is the maximum annual amount that the Airport Commission can get for this franchise? Show your work

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