Question 1.

The market for razor blades consists of two firms: Gillette and Wilkinson Sword/Schick. As the manager of Gillette, you enjoy a patented technology that permits your company to produce razor blades more quickly. You use that advantage to be first to choose your profit-maximizing output level in the market, and your competitor knows your output before choosing their own output. The market demand for razor blades is Q = 3 - 0.25P; Gillette's total costs are C1 (Q1) = 2Q1; and Wilkinson's total costs are C2 (Q2) = 3Q2. Compute Gillette's profit, and compute Wilkinson's profit. Ignoring antitrust law considerations, would it be mutually profitable for the companies to collude by changing Gillette's and Wilkinson's outputs to 1.20 and 0.30. Can Gillette trust Wilkinson?

Question 2

B.4 Rationalizeable Strategies Question 4: Sam's Club and Costco are each planning to open a new store somewhere in Los Angeles (Northridge, Hollywood, Brentwood, or San Pedro) next year. They each face a tension, common in strategic decision making, between cooperating and locating far apart to maximize the total number of customers reached by both stores and competing and locating close together to increase their own share of the total number of customers. That tension between cooperation and competition results in the profit payoffs in the normal form below. Costco Nor Hol Bre San Nor 17 10 15 7 11 16 9 Hol 4 11 4 5 19 7 13 19 Bre 7 13 4 15 16 23 7 13 San 10 9 10 17 10 15 10 15 a) Where should the stores locate if they both choose their locations in February of next year? Be sure to explain your answer. b) Where should Costco locate if Sam's choose its location in February of next year, and Costco chooses in January of next year