Answer the two questions below about Hotteling's spatial differentiation model.

A small town has only one street, with a length of 1 km. City dwellers are evenly distributed along the street. Consider the problem of a pizzeria (Incumbent) that is located in the middle of the city, at km . She must decide what price to charge to maximize her profit. For simplicity, assume zero production cost for the entire fiscal year. The utility of each consumer regarding the consumption of pizza is given by

0,9 -d - p consume pizza U= if not consume