4. Both Tom Haverford and Dr. Saperstein run a teen clothing rental service. Tom Haverford owns Rent a Swag and Dr. Sape
Posted: Sun Jul 03, 2022 6:50 am
4. Both Tom Haverford and Dr. Saperstein run a teen clothingrental service. Tom Haverford owns Rent a Swag and Dr. Sapersteinowns Tommy’s Closet, and they compete fiercely for customers. Themarket demand for their services is 160 − 2p. The marginal cost ofrunning the business is the same for both firms: $10.
a. What is the equilibrium market price? [3 points]
b. What is the social optimal quantity? [2 points]
Jean-Ralphio wants Dr. Saperstein and Tom Haverford to make upand form an alliance or cartel. As an alliance, both Tom and Dr.Saperstein would both choose an agreed upon price, and then sharethe profits equally.
c. What price should Tom and Dr. Saperstein agree on? [6points]
d. How much would Tom and Dr. Saperstein both earn? [5points]
Regulators catch wind that a cartel has formed in Pawnee andform plans to break up the cartel. They ask Mona-Lisa to convinceDr. Saperstein to lower the price at Tommy’s Closet from the agreedupon price in Part c. by 1 dollar.
e. If Dr. Saperstein follows Mona-Lisa’s advice without Tom’sknowledge, what would be Tom’s and Dr. Saperstein’s new profit? [6points]
f. Using your answer in Part e., provide a brief explanation onwhy cartels are difficult to maintain. [8 points]
a. What is the equilibrium market price? [3 points]
b. What is the social optimal quantity? [2 points]
Jean-Ralphio wants Dr. Saperstein and Tom Haverford to make upand form an alliance or cartel. As an alliance, both Tom and Dr.Saperstein would both choose an agreed upon price, and then sharethe profits equally.
c. What price should Tom and Dr. Saperstein agree on? [6points]
d. How much would Tom and Dr. Saperstein both earn? [5points]
Regulators catch wind that a cartel has formed in Pawnee andform plans to break up the cartel. They ask Mona-Lisa to convinceDr. Saperstein to lower the price at Tommy’s Closet from the agreedupon price in Part c. by 1 dollar.
e. If Dr. Saperstein follows Mona-Lisa’s advice without Tom’sknowledge, what would be Tom’s and Dr. Saperstein’s new profit? [6points]
f. Using your answer in Part e., provide a brief explanation onwhy cartels are difficult to maintain. [8 points]