The market for superpremium ice creams is dominated by Ben&Jerry's and Haagen-Dazs, which compete with non-overlapping flavors and a "chunky" vs. "smooth" concept, depending on the presence of mix-ins (mix-ins are extra ingredients like chocolate, caramel, candy, and baked goods that have been added to the ice cream). Using a unit segment to represent smoothness of the ice cream, Haagen-Dazs (A) produces perfectly smooth flavors (i.e. is located at 0), while Ben&Jerry's (B) produces perfectly chunky flavors (i.e. is located at 1). Ice cream consumers differ in their preference for smoothness and are uniformly distributed along the segment. Each consumer has a disutility (in addition to the price) from departing from their favorite smoothness, equal to a unit transport cost of t = 2. Both firms have the same marginal cost c = 10 and no fixed costs. 1. Write the total cost of buying from A and for a consumer located at z. 2. Find the marginal consumer and derive demand for the two firms. Show that demand for firm i, D' = } + P. 3. Write the profit functions for each firm and derive their reaction functions.

The market for superpremium ice creams is dominated by Ben&Jerry's and Haagen-Dazs, which compete with non-overlapping flavors and a "chunky" vs. "smooth" concept, depending on the presence of mix-ins (mix-ins are extra ingredients like chocolate, caramel, candy, and baked goods that have been added to the ice cream). Using a unit segment to represent smoothness of the ice cream, Haagen-Dazs (A) produces perfectly smooth flavors (i.e. is located at 0), while Ben&Jerry's (B) produces perfectly chunky flavors (i.e. is located at 1). Ice cream consumers differ in their preference for smoothness and are uniformly distributed along the segment. Each consumer has a disutility (in addition to the price) from departing from their favorite smoothness, equal to a unit transport cost of t = 2. Both firms have the same marginal cost c = 10 and no fixed costs. 1. Write the total cost of buying from A and for a consumer located at z. 2. Find the marginal consumer and derive demand for the two firms. Show that demand for firm i, D' = } + P. 3. Write the profit functions for each firm and derive their reaction functions.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.9P

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