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1. (14 total points ) Suppose there are 5 firms located equidistantly around a circle whose Circumference is equal to 1. There are 600 consumers
1. (14 total points ) Suppose there are 5 firms located equidistantly around a circle whose Circumference is equal to 1. There are 600 consumers distributed uniformly around the circle Each consumer gets utility U = 2 from buying a unit of the good from a firm which sells their ideal brand (a firm located at the consumer's location ). Also , the consumer's utility decreases by 3 times the distance that the consumer is located from the firm . So a consumer who buys from firm i gets utility given by U = 2 - 3x where x is the distance from the consumer's location to firm i's location . The consumer's surplus from purchasing a unit of the good from firm i is the difference between their utility from purchasing a unit of the good from firm i and the price that firm i charges . So CS = U Also , the consumer has no alternatives , so the consumer will buy a unit of the good from the firm which gives her the maximum surplus as long as the maximum surplus gained from purchasing from that firm is greater than 0. a) (6 points ) Consider a particular firm denoted Firm 2. Let Firm 1 be the firm located on one side of Firm 2, and let Firm 3 be the firm located on the other side of Firm 2. Suppose Firm 1 charges a price of 1 and Firm 3 charges a price equal to 1.2 . Write a general expression for Firm 2's demand (note that the price range should be restricted to .6
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