Let us revisit the pricing game between Coles and Woolworths in assignment one. Suppose there are...

  

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Let us revisit the pricing game between Coles and Woolworths in assignment one. Suppose there are only two supermarkets in Australia: Coles and Woolworths, and they sell only one product: milk. Based on historial sales data, it is estimated that the demand function of Coles milk is Q(PC, PW) = 7.6-10PC+8PW, where PC is the price of Coles milk and PW is the price of Woolworths milk. Similarly, it is estimated that the demand function of Woolworths milk is QW (PC, pW) 7.6-10PW +8PC. Coles faces the following total cost function TC(Q) = (FMP + V)QC +1, where FMP represents the average farmgate milk price (the wholesale cost of milk before process- ing) and V represents all other variable costs per unit. Similarly, Woolworths faces the following total cost function TC(QW) = (FMP + V)QW + 1. Instead of assuming that each firm can choose only one of two price points, in the following we assume that each firm can choose any non-negative price, i.e., PC 20 and PW ≥ 0. (a) (4 marks) Suppose FMP for each firm. = $0.54 and V $0.26. Determine the optimal pricing strategy (b) (4 marks)Suppose FMP = $0.71 and V = $0.33. Determine the optimal pricing strategy for each firm. Let us revisit the pricing game between Coles and Woolworths in assignment one. Suppose there are only two supermarkets in Australia: Coles and Woolworths, and they sell only one product: milk. Based on historial sales data, it is estimated that the demand function of Coles milk is Q(PC, PW) = 7.6-10PC+8PW, where PC is the price of Coles milk and PW is the price of Woolworths milk. Similarly, it is estimated that the demand function of Woolworths milk is QW (PC, pW) 7.6-10PW +8PC. Coles faces the following total cost function TC(Q) = (FMP + V)QC +1, where FMP represents the average farmgate milk price (the wholesale cost of milk before process- ing) and V represents all other variable costs per unit. Similarly, Woolworths faces the following total cost function TC(QW) = (FMP + V)QW + 1. Instead of assuming that each firm can choose only one of two price points, in the following we assume that each firm can choose any non-negative price, i.e., PC 20 and PW ≥ 0. (a) (4 marks) Suppose FMP for each firm. = $0.54 and V $0.26. Determine the optimal pricing strategy (b) (4 marks)Suppose FMP = $0.71 and V = $0.33. Determine the optimal pricing strategy for each firm.

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There two competitos These two supermarkets compete take Price dec... View the full answer