Question: 1. A town has two food stores, Store I, which sells Italian choose, and Store 2, which sella French cheese. The two stores have to

1. A town has two food stores, Store I, which sells Italian choose, and Store 2, which sella French cheese. The two stores have to set their prices individually and simultaneously If Store I's price is A) (dollars per pound of cheese) and Store 2's price is A (dollars per pound of cheese), their respective sakes, Q (thousand pounds of choose) and Q2 (thousand pounds of cheese), are given by the following equations Q1 - 14-A +058: 9-24+058-A It costs $2 to make a pound of choose. This means that, given the prices of the two stores (A, R), Store I's profit function is (A. A)- (A-2)(14-A + 0.58). and Store 2's profit function is "YA, A) - (1 -2)(24 + 0.5A - A). (a) If Store 2 charges price Is, which price will Store I charge? Find the best reply function of Store I. (b) If Store I charges price Pi, which price will Store 2 charge? Find the best reply function of Store 2. (c) Plot the best reply functions of cach store in one figure. (d) Find the Nash equilibrium
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
