HELP ON PART B

Question 6 (12 marks) Consider the linear city model. Consumers are uniformly distributed on interval [O, 1]_ Four firms selling the same good choose their locations simultaneously and independently. Firm I chooses to locate at a, firm 2 chooses to locate at b, firm 3 chooses to National University of Singapore Department Of Economics ECA5101 Microeconomic Analysis I semester 1 AY 2021/2022 locate at c, and firm 4 chooses to locate at d. The marginal cost Of each firm is O_ Suppose the price Of the good is exogenously determined at P > O. Each consumer buys one unit Of the good from the firm whose location is closest to the consumer. Suppose that firms share demand equally if they choose the same location. a) (4 marks) Is a = b = c = d = 0.5 a Nash equilibrium? Briefly explain. b) (8 marks) Suppose the firms choose the following locations, a = 0.2, b = c = 0.6, and d l. Given the locations chosen by the Other firms, does firm 3 have an incentive to deviate? Is this a Nash equilibrium? Briefly explain.