Imagine that there are two ice cream vendors on a linear beach 100 yards long. We assume that

– Consumers are evenly distributed along the beach, located at the endpoints and spaced 10 yards apart.

– Production costs are zero.

– Both vendors sell ice cream for p cents.

– The cost to consumers of travel is 1 2 cent per yard (money equivalent of consumer’s time).

a. What are the profit-maximizing equilibrium locations for the two vendors? What do aggregate travel costs equal?

b. What are the socially optimal locations (to minimize travel costs)? How much are aggregate travel costs reduced compared to the answer in part a?