Bleeker Street Pizza and Keste Pizza & Vino are located close to each other on Bleeker...

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Bleeker Street Pizza and Keste Pizza & Vino are located close to each other on Bleeker Street in the West Village. There are 450 potential customers every day, and suppose that each of them is willing to pay up to $2 for a slice of pizza. Since the two shops are selling almost identical pizza, customers always prefer to buy from the cheaper one. (If they charge the same price, then they will split the market equally.) It is also known that each pizza shop can supply at most 600 slices of pizza every day, and the production cost for each slice of pizza is 80 cents. Suppose that the owner of each shop takes a short-run perspective and only wants to maximize each day's profits, and no shops are going to shut down in the short run. (a) [2 points] What is the appropriate economic model to study price competition in this local pizza market? Bleeker Street Pizza and Keste Pizza & Vino are located close to each other on Bleeker Street in the West Village. There are 450 potential customers every day, and suppose that each of them is willing to pay up to $2 for a slice of pizza. Since the two shops are selling almost identical pizza, customers always prefer to buy from the cheaper one. (If they charge the same price, then they will split the market equally.) It is also known that each pizza shop can supply at most 600 slices of pizza every day, and the production cost for each slice of pizza is 80 cents. Suppose that the owner of each shop takes a short-run perspective and only wants to maximize each day's profits, and no shops are going to shut down in the short run. (a) [2 points] What is the appropriate economic model to study price competition in this local pizza market?

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