A city has two newspapers. Demand for either paper depends
QUESTION
A city has two newspapers. Demand for either paper depends on its own price and the price of itsrival. Demand functions for papers A and B respectively, measured in tens of thousands ofsubscribers, are 21 – 2Pa + Pb and 21 + Pa 2Pb. The marginal cost of printing and distributingan extra paper just equals the extra advertising revenue from another reader, so each paper treatsmarginal costs as zero. Each paper maximizes its revenue assuming that the otherâs price isindependent of its own price. If the papers enter a joint operating agreement where they setprices to maximize their total revenue, by how much will newspaper prices rise?
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