A City Has Two Newspapers

question 37

Multiple Choice

A city has two newspapers.Demand for either paper depends on its own price and the price of its rival.Demand functions for papers A and B respectively, measured in tens of thousands of subscriptions, are 21 - 2P_a + P_b and 21 +P_a 2 2P_b.The marginal cost of printing and distributing an extra paper just equals the extra advertising revenue from another reader, so each paper treats marginal costs as zero.Each paper maximizes its revenue assuming that the other's price is independent of its own price.If the papers enter a joint operating agreement where they set prices to maximize total revenue, by how much will newspaper prices rise?

• A)$3
• B)$2
• C)$0
• D)$3.50
• E)$2.50

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Definitions:

Maximum Payoff

The highest possible return that can be achieved from an investment or decision scenario.

Minimum Payoff

The least amount of return or profit one can expect from an investment or decision.

Payoff Rate

The rate of return or profit that is expected or realized from an investment, operation, or decision.

ARM

A type of processor architecture known for its power efficiency, commonly used in mobile devices.