8. Consumers are uniformly distributed on a linear city of length one and at each point on the line lies a single consumer. All consumers are similar and each of them consumes exactly one unit of a homogeneous good. In addition to the money price, consumers incur linear transport costs: cost t per unit of distance travelled. There are two firms, one located at the left-hand end of the line, and the other at the right-hand end. Each firm produces a product with an undesirable ingredient at zero marginal cost. Suppose that unless they are informed, consumers are not aware of this ingredient. The firms compete by simultaneously setting prices. (a) (10 marks] Compute the equilibrium prices and profits in this market if firms cannot inform consumers that their product contains the undesirable ingredient. (b) (15 marks] Now suppose that, at an initial stage, firms simultaneously and independently decide whether to inform consumers that their product contains an undesirable ingredient and further suppose that such provision of information is costless). Then, at the second stage, the firms simultaneously set their prices. If a consumer knows that product i has the undesirable 8. Consumers are uniformly distributed on a linear city of length one and at each point on the line lies a single consumer. All consumers are similar and each of them consumes exactly one unit of a homogeneous good. In addition to the money price, consumers incur linear transport costs: cost t per unit of distance travelled. There are two firms, one located at the left-hand end of the line, and the other at the right-hand end. Each firm produces a product with an undesirable ingredient at zero marginal cost. Suppose that unless they are informed, consumers are not aware of this ingredient. The firms compete by simultaneously setting prices. (a) (10 marks] Compute the equilibrium prices and profits in this market if firms cannot inform consumers that their product contains the undesirable ingredient. (b) (15 marks] Now suppose that, at an initial stage, firms simultaneously and independently decide whether to inform consumers that their product contains an undesirable ingredient and further suppose that such provision of information is costless). Then, at the second stage, the firms simultaneously set their prices. If a consumer knows that product i has the undesirable