Jane and Sara are competing orange juice salespersons in Amherst. Their stands are next to each other on a street and consumers regard them as identical. The marginal cost of an orange juice is $1. The demand for orange juice every hour is Q = 20 − P where P is the lowest price between the two salespersons. If their prices are equal they split demand equally.

a. If they set prices simultaneously (prices can be any real number), what is the Nash equilibrium price?

b. If, against what we have assumed in class, orange juice salespersons have to charge prices in whole dollars ($1, $2, $3, etc), what are the Nash equilibrium prices?

c. Assuming whole dollar pricing, if Jane sets her price before Sara, what price would she charge?

Answer rating: 100% (QA)

a If the prices are p 1 and p 2 then the demand for each of them is Q 1 10 p 1 2 and Q 2 10 p 2 2 Th... View the full answer