The demand curve for pizza in Smalltown is Q = 130 - P, where Q represents the

quantity demanded for pizza, and P represents the market price for pizza. There are

two pizza restaurants in Smalltown: Restaurant A and Restaurant B. Both Restaurants

A and B have the same cost of production: Total Cost TC = 10Q, so MC = 10.

1. If Restaurants A and B cooperate (acting as a single-price monopolist) and split the

market equally, what would be the total market output (total of Restaurants A and

B) and market price at the equilibrium? Please show and explain clearly how you get

the answers using a table, a graph, or mathematically. (5 points)

2. If Restaurants A and B cooperate as a monopoly (like in Part a) and practice perfect

price discrimination, what would the total market output (total of Restaurants A and

B), market price, and size of economic profit for Restaurants A and B in total at the

equilibrium? Please show and explain clearly how you get the answers using a table,

a graph, or mathematically. (5 points)

3. Construct the Best Response Function of Restaurants A and B, and derive the

duopoly quantity. Based on the Best Response Function of Restaurant A, show that

Restaurant A will not stay in cooperation with Restaurant B as described in Part a)

but will cheat. Please show and explain clearly how you get the answers using a

table, a graph, or mathematically. (8 points)

4. Continuation of Part c), if they both cheat, what would be the total market output

(total of Restaurants A and B), market price, and size of economic profit for

Restaurants A and B in total at the equilibrium? (3 points)