1) Identical firms compete a la Salop in a circle city whose residents are uniformly distributed along the city and each resident buys one unit of the good.

a) Suppose the city can support two firms; characterise a Nash equilibrium of the game. [5 marks]

b) Recently the population of the city has increased because of migration so that the city can now support four firms. If the residents remain uniformly distributed, characterise a Nash equilibrium of the game. [5 marks]

2)Use the Salop model to predict how firms in the market for Kuala Lumpur to Singapore bus rides are likely to compete with one another.