Oligopoly in Differentiated Good Markets 1. In Tusville, everyone lives along Main Street which is 10 miles long. There are 1000 people uniformly spread up and down Main Street, and each day they each buy one 'uit smoothie 'om one of the two stores located at either end of Main Street. Customers ride their motor scooters to and 'om the store and the motor scooters use $0.50 worth of gas per mile. Customers buy their smoothies from the store offering the lowest price, which is the store's price plus the customer's travel costs getting to and from the store. Ben owns the store at the west end of Main Street and sells smoothies at a price of p] per smoothie. Will owns the store at the east end of Main Street and sells smoothies at a price of pg per smoothie. The marginal cost of a smoothie is $1. In addition, each owner pays the city $250 per day for the right to sell smoothies. Assume that prices are chosen simultaneously. (a) Write down the equation that determines the location of the consumer who is indifferent between buying 'om Ben or Will. (b) Formulate Ben's optimization problem and derive his best reply to 1);. (c) Formulate Will's optimization problem and derive his best reply to p]. (d) Find the equilibrium prices, quantities and profits. 2. George is attracted by the prots that Ben and Will are earning and decides to open a store at the midpoint of Main Street. His costs are the same as Ben and Willl (a) Write down equations that determine the location of the consumer who is indifferent between buying 'om Ben or George and the location of the consumer who is indifferent between buying 'om George and Will. (b) If Will and Ben do not change their prices (your answer to (d) in problem 2), what is George's best reply? How much prot would he earn? (c) Derive the best replies for Will and Ben and nd the equilibrium prices and quantities. 3. Suppose George is actually Ben's partner and they set prices to maximize prots at both locations. (a) How do you think prices will change relative to your answer to (c) of question 3? Provide intuition. (b) Conrm your intuition by deriving best replies and computing equilibrium prices