Now, Penn-Ice-Cream buys out shop A and B. Thus, Penn Ice Cream operates these t
ID: 1099912 • Letter: N
Question
Now, Penn-Ice-Cream buys out shop A and B. Thus, Penn Ice Cream operates these two shops.
Furthermore, Franklin-Ice-Cream enters this market and builds a shop F at Xf = 0.7
(a) What is the location of the consumer who is indi erent between buying from shop A or shop
F, and shop F or shop B. Write down the profit functions for Penn-Ice-Cream and Franklin-Ice-Cream.
(b) What price should Franklin-Ice-Cream choose to charge at shop F? Moreover, what prices
should Penn-Ice-Cream choose to charge at its two shops? (Price at shop A and Price at
shop B can be di erent.)
Explanation / Answer
Keep producing and developing etc up until the marginal benefit is zero (marginal benefit minus marginal cost); even though the marginal benefit is less than it was previously,
For maximum economic well-being firms are best to OPTIMIZE profits,
not maximize profits.
Plus, product differentiation may also be a non-numerical issue necessary for the survival of the firm in the long run. For example, we could be producing model T cars extremely efficiently, but if we didn't develop products, we'd be put out of business by other firms who do go out on a limb and spend "numerically unnecessary" costs to make their product a little more different, interesting, or better in any way. Thankfully, we have more colourful and much better, stronger, faster, more dependable and comfortable cars now because of it.
Plus, in macro-economic perspective, product differentiation provides extra jobs in research & development, engineering, marketing, etc...Extra people can get incomes and get spending power to buy products and live an enriched life and contribute revenues and profits to other producers of products. Extra employment is always a benefit that is not really "wasteful from the social point of view".
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