Question
You make very tasty hot dogs. You can do hot dog business in two potential monopoly markets: one inside Fenway Park, Boston's baseball stadium, and
You make very tasty hot dogs. You can do hot dog business in two potential monopoly markets: one inside Fenway Park, Boston's baseball stadium, and one inside TD Garden, the home arena for Boston's ice hockey team, the Bruins, and basketball team, the Celtics. The demand for hot dogs in each game in Fenway Park is QFenway=1005p and the demand for hot dogs per game in TD Garden is QTD=505p. You need to pay 100 dollars per game for renting the space in each market. The cost of making a hot dog is 2 dollars.
Assume that you can sell fractions of hot dogs.
1) Calculate the price for both market (PFenway & PTD) and Consumer Surplus. Which market will you enter?
2) Now suppose that Fenway Park has space for another potential hot dog seller, who can make the same hot dogs with the same marginal cost as you and has to pay the same amount of rent. Customers will always buy from the cheaper seller, but when the price is the same, they are indifferent and buy randomly (that is, each seller gets half of the customers). In the questions that are part of this problem, assume hot dog sellers are competing over price (not quantity).
If you and the other hot dog seller agreed to charge the same price that maximizes each's profit, A - what would this price be? B - What would your (alone, not combined) profit be? C- How much will you charge? (Assume that you can set the price down to cents (hundredths of a dollar). D-What will your profit be? E-And what will the profit of the other seller be?
3) Suppose both of you are operating in the market. A)Find the price of hot dogs such that if you and the other seller have no agreement on what price to charge, both of you acting in your own best interest charge the same price. B) What will be each of your profits? C) Will a seller enter if you are already in the market?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started