Demand and supply, Business Economics

Star Petroleum and Moonlight Petroleum are retail petrol stations that compete in the local market to sell petrol to consumers. Star and Moonlight are located across the street from one another and can observe the prices posted on each other's price display boards. Demand for petrol in this market is Q = 50 - 10P and both petrol stations obtain petrol from their supplier at $1.25 per litre. On the day that both petrol stations opened for business each owner was observed changing the price of petrol advertised on its display board more than 10 times; the owner of Star Petroleum lowered its price to slightly undercut Moonlight's price, and the owner of Moonlight lowered its price to beat Star's price. Since then, prices appear to have stabilized.

a. Under current conditions, how many litres of petrol are sold in the market, and at what price? Explain.

b. Would your answer differ if Star Petroleum had service attendants available to fill consumers' tanks but Moonlight was only a self-service station? Explain.

Posted Date: 2/21/2013 1:23:05 AM | Location : United States

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