Question: Please answer the following question: 1. Pricing Restrictions versus Quantity Restrictions: 40 points Consider two nightclubs in Pawnee, called the Snakehole Lounge and the Bulge.

Please answer the following question:

1. Pricing Restrictions versus Quantity Restrictions: 40 points Consider two nightclubs in Pawnee, called the Snakehole Lounge and the Bulge. They both have the same constant (private) marginal cost of production c. The market de- mand for nighthfe in Pawnee is D (p) , where p is the price of entry and demand is decreasing in p. The rms engage in price competition: The demand for the Snakehole Lounge is 0 PS > PB DS(P51PB)= %D(Ps) P5 = PB 1 D (P5) P5 c or m; 2 p5 > c. (3 points)

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