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...
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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)

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