Reference no: EM13182110
Spookmart and Scaretown are the only two halloween costume stores in town. Both the stores are wondering how many Miley Cyrus twerking costumes to order. Each costume costs $2 from the supplier (i.e., marginal cost for the stores is $2) and market demand for the costumes is:
P (Q) = 14 ? Q
(a) Write down the profit functions for each firm.
(b) Find the best response functions for each firm.
(c) Find the equilibrium quantities ordered for each store, total quantity,price and profits for each firm.
(b) How much deadweight loss is there?
Suppose Scaretown is located in a township which charges a $1 tax to the store for each twerking outfit sold.
(a) Write down the profit function for each firm.
(b) Find the best response function for each firm.
(c) What are equilibrium quantities for each store, total quantity, price andprofits? (hint: answers may be in fractions. don't panic.)
(d) How much deadweight loss is there?
(e) Suppose Scaretown goes out of business. What is the equilibrium quantity, price and profit for Spookmart? How much dead weight loss is there? Compare this to the previous answer.
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: Spookmart and Scaretown are the only two halloween costume stores in town. Both the stores are wondering how many Miley Cyrus twerking costumes to order. Each costume costs $2 from the supplier (i.e., marginal cost for the stores is $2) and market..
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