1. Assume that there are 2 coffee shops A and B located at the ends of a street. The street is on a hilly landscape, Caf B is on the top of the hill and caf A is down the hill. Assume that cafe A is at point 0 and cafe B is at point 1. The length of the street is 1 and consumers of size 1 are located uniformly along the street. However, it is easier to walk down the hill than walking up. Therefore, consumers incur a disutility cost of 2 dollars for travelling one unit of distance for walking down the hill and a disutility cost of 4 dollars for walking one unit of distance up the hill. Their willingness to pay for a cup of coffee is 30 dollars. Find the indifferent customer as a function of cafe A's and Cafe B's price. Then find the demand for Cafe A and demand for Cafe B. Find the optimal price that each cafe should set to maximize profits. Now find the numerical value of indifferent customer and calculate the profits.

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To find the indifferent customer as a function of cafe As and Cafe Bs price we need to calculate the ... View the full answer