YorMagnets and YorMugs are two companies selling merchandise to tourists visiting the city of York. YorMagnets sells fridge magnets and YorMugs sells mugs with images of popular attractions. Assume that YorMagnets is the only company producing magnets for York and YorMugs is the only company producing local mugs. The daily demand for magnets (until 2019) is given by D1 = 50/9 – 200/9 P1 + 100/9 P2, where P1 is the price of magnets and P2 is the price of mugs. The daily demand for mugs (until 2019) is given by D2 = 500/9 – 200/9 P2 + 100/9 P1. The marginal cost of producing magnets is £0.50 per magnet and the marginal cost of producing mugs is £2.00 per mug. Both firms simultaneously choose their quantities. You may assume that both firms aim to maximise profits. Are magnets and mugs (perfect) complements or (perfect) substitutes? Explain your answer. How would you characterise this market? Explain your answer. Calculate the equilibrium price for both products and quantity for both firms.
YorMagnets and YorMugs are two companies selling merchandise to tourists visiting the city of York. YorMagnets sells fridge magnets and YorMugs sells mugs with images of popular attractions. Assume that YorMagnets is the only company producing magnets for York and YorMugs is the only company producing local mugs. The daily
D1 = 50/9 – 200/9 P1 + 100/9 P2,
where P1 is the
D2 = 500/9 – 200/9 P2 + 100/9 P1.
The marginal cost of producing magnets is £0.50 per magnet and the marginal cost of producing mugs is £2.00 per mug. Both firms simultaneously choose their quantities. You may assume that both firms aim to maximise profits.
- Are magnets and mugs (perfect) complements or (perfect) substitutes? Explain your answer.
- How would you characterise this market? Explain your answer.
- Calculate the
equilibrium price for both products and quantity for both firms. - Calculate the total
producer surplus anddeadweight loss .
Due to lockdowns and travel restrictions in 2020 and 2021, the number of tourists that visit York has significantly dropped.
Explain how a drop in tourists will have affected the demand
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