Your Neighborhood Association Is Participating in a Fund Raising Event

Essay

Your neighborhood association is participating in a fund raising event at a street fair in the adjacent neighborhood. You are going to have the fried mushroom and gravy booth at this fair which will run from 10 A.M. to 6 P.M. on the second Saturday of a ten-day city-wide festival. This is the only fund-raiser you have all year and it is critical that you earn as much money as possible. You are the only fried mushroom with gravy booth in the entire fair, which covers about 10 square blocks. Even thought is takes almost 40 people to staff this booth for the 12 hours it takes to open, operate and close the booth, all of these people are volunteers from the neighborhood association. All food and related items; propane, plates, forks, etc are donated. Because it is the neighborhood next door, you don't even have to pay for the rental of the booth. Because of all these factors, you believe that you have a costless monopoly. Given your estimate of the one day demand for mushrooms:
Q_m = 1050 - 150P_m
where Q_m = servings of fried mushroom and gravy.
a. What price would yield you the most revenue?
b. If another charity opens a fried mushroom and gravy booth adjacent to yours, but demand remains as above assume the product is undifferentiated), what price will prevail and how much revenue will each of you generate under the Cournot assumption?
c. Could you improve the situation in part b through collusion? If not, why not. If so, how and what would be result in terms of revenue?