What are the new equilibrium prices

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Question: Assume that the pizza market consists of two firms, Conan's and Pizza Hut. The price of a Conan pizza is denoted by Pc and the price of a Pizza Hut Pizza is Ph. Both sellers have a marginal cost of $5 for another pizza. The demand curves facing the two firms are:

Conan:     Qc = 600 -30Pc + 20Ph

Pizza Hut: Qh = 625 -41Ph + 17Pc.

1. Calculate the equilibrium prices.

2. Using excel or some other compute-based tool, draw in a graph the best response curves that lead to your numerical solution given in your answer to the first question. They should intersect at the prices you just calculated. Put Pc on the horizontal axis.

3. Suppose that Conan reduces its marginal cost to $3. What are the new equilibrium prices?

4. Using some computer-based tool, draw the best response curves for this problem. Show that they intersect at the prices you calculated in question 3.

Reference no: EM132196825

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