Reference no: EM133380672
Case Study: James Bay has only two places that sell doughnuts, James Coffee and Bay Coffee. The doughnuts at James Coffee and Bay Coffee taste exactly identical - nobody can tell the difference. James Coffee has constant marginal costs of $1 per doughnut. Bay Coffee has constant marginal costs of $2 per doughnut. Fixed costs are zero for both doughnut shops.
Residents of James Bay have an overall inverse demand function for doughnuts given by p = 38 - 0.04q, where p is the price of a doughnut, and q is the total number of doughnuts that they are willing to buy at price p. For the purposes of this question, assume that the coffee shops can sell customers a fraction of a doughnut, and round all of your answers to the second decimal point.
Suppose that the owners of James Coffee decide to change their opening hours and open later in the day. Now, when they decide how many doughnuts to bake for the day, they can see how many doughnuts Bay Coffee has baked.
Questions:
Given this new setting, how many doughnuts will James Coffee now decide to bake?
How many doughnuts will Bay Coffee now bake?
What will be the price of a doughnut in James Bay under this new scenario?
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