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