Answered step by step
Verified Expert Solution
Question
1 Approved Answer
2. LC Burgers is currently the sole fast-food chain in Linear city, a city that is one mile long and consists of one street, with
2. LC Burgers is currently the sole fast-food chain in Linear city, a city that is one mile long and consists of one street, with one thousand consumers distributed uniformly along the street. The price for the BigLC, the only product sold by the LC Burger chain, is set nationally at 4, so that the local Linear city manager's decision is limited to choosing the number and location of its stores. Each store costs 600,000 to open and lasts indefinitely. Each consumer buys one burger per week at the current price of 4. However, no consumer will walk for more than a quarter of a mile to buy a burger. Operating costs are 1 per burger. The interest rates is 0.1% per week. The market conditions are unchanging, so present discounted profits can be regarded as level perpetuities (hint: present value is obtained dividing the weekly profit by the interest rate). 2.1. Suppose that LC Burgers faces no competition and no threat of entry. How many stores should LC Burgers open, and at what locations? What is the profit level? 2.2. Suppose now the following situation: the maximum WTP of a consumer is 5, the return transport cost for a quarter mile is 0.5, prices are liberalized. Is the optimal number of stores the same as the one found at point 2.1? And the profit
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started