# Problem Set #5

### Problem Set #5

1. Nestlé’s has over one hundred production facilities that all purchase hair nets and other hygienic supplies through independent suppliers. Nestlé created a centralized purchasing system that is cumbersome to use has the potential to bargain for lower prices. Suppose that a division can purchase hairnets for \$8 independently. If they all purchase through the central system, hairnets cost \$6. But if one division uses the system and the other purchases independently, the cost to the first is \$9 while the cost to the second is \$7. What does the simultaneous move game look like and what is the equilibrium?

2. The Doug’s Delicious Diner faces a demand curve for its daily special in which there are an equal number of potential buyers at every \$0.20 price point between \$8.00 and \$6.00. If the marginal cost is \$6.35, what price maximizes profits? Doug notices that at this price the unserved portion of demand are all senior citizens. If it offered a senior discount, how much should it be