In class we kept to the basic location game.Let's extend the model to help think about fixed costs and branding.Now our locations are on a circle rather than a straight line.(A circle can be a good approximation of a city block, for example; using a circle might mean that we don't want to worry about the special characteristics of corners for the time being.)Assume firms locate on the perimeter of the circle, customers walk around that perimeter to reach the closest firm, and that the other assumptions are as in the straight line game (even distribution of customers, they don't like to walk, ...).

-Describe how 2 competitive firms would locate.

-Describe where a monopolist would put two locations (branches).

Now let's look at entry and fixed costs.Introduce a cost structure: $100 fixed cost per location per day.On the circle, total revenues minus variable costs are $350 per day.So, for example, a single firm with one location would have a net profit of $350 - $100 = $250.

-Suppose you are, for the moment, a monopolist and a single location maximizes your profits.(Consumers might grumble, but they are willing to walk at least half the circumference of the circle.) But then you face a threat of another firm entering.How many locations should you open, and where should they be located?Explain.

-An important antitrust case accused the then 4 big breakfast cereal producers of anticompetitive behavior through the profusion of individual cereal offerings.As evidence the government showed that some of the individual offerings appeared to lower company profits.Explain this in terms of the circle model.