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 nightlife in Pawnee is D (p) , where p is the price of entry and demand is decreasing in p. The firms engage in price competition: The demand for the Snakehole Lounge is 0 P5 > PB 05 (Papa) = i1) (395) P5 = PB r D (P3) P5 r: or 1):; 2 p5 > c. (3 points)

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