Question
[25marks] Consider the horizontal differentiation model of Linear City the consumers are uniformly distributed on the segment [0.1]. Consumers have a transport cost td where
[25marks] Consider the horizontal differentiation model of "Linear City" the consumers are uniformly distributed on the segment [0.1]. Consumers have a transport cost td where d is the distance traveled. All consumers have a valuation s and the marginal cost of producing the good is c. The fixed cost to open a store is f for every location.
1
a) How high would have to be s for a monopolist located at 1/2 decided to put a price at which all consumers are served?(All decide to eat).
b) If F = 2t and the monopolist must decide between one or two locations, how many locations would it choose? What will be its 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