What is the daily price of a room in this market?

which currentl Show more Drexarriott and Dragonday Inn are each considering opening a new hotel in Mario City which currently has no hotels. The two companies both anticipate aggregate daily demand for hotel rooms in Mario City of Q = 500 2P where Q is the total number of rooms (Q = qDrexarriott + qDragonday) and P is the price in dollars. Both hotels have a marginal cost of $10 per room per day. Suppose that Drexarriott and Dragonday Inn simultaneously choose the quantity of rooms to supply (i.e. suppose they are Cournot competitors). (a) Given that Drexarriott and Dragonday Inn choose their quantities simultaneously solve for the optimal quantities for each to supply. What is the daily price of a room in this market? What are the economic profits per day for Drexarriott and Dragonday Inn? (b) Suppose that executives at both companies realize that they might do better by colluding over the quantity of rooms to supply to the market. What is the greatest economic profit they could each make by colluding (assuming they split production and profits equally under collusion)? (c) Show mathematically and explain in words why the collusive arrangement you solved for in part (b) is not sustainable if this game is played once. In what sense is this situation similar to a prisoners dilemma game? (d) Suppose the two firms are not colluding but Drexarriott figures out a way to reduce its marginal cost to $7. Assuming Dragonday Inns marginal cost is still $10 solve for the new optimal quantities price and economic profits. Describe briefly how the solution compares that which you found in part (a). Show less

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