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GENERAL ECONOMICS ASSIGNMENT

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GENERAL ECONOMICS ASSIGNMENT The two largest diner chains in Kansas compete for weekday breakfast customers. The two chains, Golden Inn and Village Diner, each offer weekday breakfast customers a ?breakfast club? membership that entitles customers to a breakfast buffet between 6: 00 A.M. and 8:30 A.M. Club Memberships are sold as ? passes? good for 20 weekday breakfast visits. Golden Inn offers a modest but tasty buffet, while Village Diner provides a wider variety of breakfast items that are also said to be quite tasty. The demand function for breakfast club memberships are QG = 5,000 ? 25PG + 10PV Qv = 4,200 ? 24Pv + 15G Where QG and Qv are the number of club membership sold monthly and PG and PVare the prices of club memberships, both respectively, at Golden Inn and Village Diner chains. Both diners experience long-run constant costs of production, which are PG = BRG (PV) = 125 + 0.2PV PV = BRV (PG) + 125 + 0.3125PG a. If Village Diner charges $200 for its breakfast club membership, find the demand inverse demand, and marginal revenue functions for Golden Inn. What is the profit maximizing price for Golden Inn given Village Diner charges a price of $200? Verify mathematically that this price can be obtained from the appropriate best-response curve given above. b. Find the Nash equilibrium prices for the two diners. How many breakfast club memberships will each diner sell in Nash equilibrium? How much profit will each diner make? c. How much profit would Golden Inn and Village Diner earn if they charged prices of $165 and $180?

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