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Problem 6 (20 points ) Circle K and Big B are the only two gas stations in a small town of Shyville . They're located
Problem 6 (20 points ) Circle K and Big B are the only two gas stations in a small town of Shyville . They're located on either side of Shyville's Main Street , at the town's only stoplight . Both Circle K and Big B have large signs advertising their prices to passing motorists . Sal, the owner of Circle K, and Kumar , the owner of Big B, compete both on price and on hours of operation ; each decides whether to stay open nights and Sundays , or close at 9 pm each night and stay closed on Sundays . Night and Sunday business in Shyville is worth $60,000 in annual profit , though of course if both are open , they will share that profit approximately equally . Moreover , Sal and Kumar also value time with their families during evenings and weekends , and staying open would cost each $20,000 in forgone leisure . Finally , if both Circle K and Big B are closed nights and Sundays , then the residents of Shyville will simply be more disciplined in their gasoline purchasing habits ; in this case , Sal and Kumar will split the $60,000 in profit without needing to stay open . Sal and Kumar can change prices at any time , but staying open nights and Sundays is only legal in Shyville if the owner obtains a permit . Permits for night and Sunday operation are only issued once per year on January 4 th, the only day of the year that the mayor is sober enough to conduct business and sign the permits a. Write down the game in which Circle K and Big B choose whether to stay open nights and Sundays , or not . Analyze this game . What is the equilibrium / equilibria Explain . (10 points ) Donotdistributethisexam Donotdistributethisexam
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