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Problem 2. Locating your stand A iirm's choioe of location is of great importance as proximity to its customers and oompetitors determines profitability. Bruce and
Problem 2. Locating your stand A iirm's choioe of location is of great importance as proximity to its customers and oompetitors determines profitability. Bruce and Ian {B and I} work [or the same soft drink company and their job is to sell soda at a popular beach. They work at the same beach and by company policy. must charge the same price. The company gives each salesperson a commission of $1 per can sold. Due to requirements of refrigeration. each salesperson must work from a stationary booth on the beach. The only decision the salesperson has to make is the location of the booth on the beach at the beginning of the day. Bruce and Ian select the locations of their booths independently and simultaneously. The beach is divided into ii regions of equal size. labeled l._ 2. 3. 4. 5. from leftmost [region I} to center (region 3] to rightmost (region 5]. Booths can be located in any one of these ve regions. It is also possible [or both sales- people to locate in the same region. (in any given day. If} people in each region will wish to purchase one soda each. The customers will walk to the nearest booth to make their purchase. If the customers of a given region are indillerent between the two booths. they go to each of them with probability oneshalf. Bruce and Ian seek to maximize their profits. [a] Write down the normal Iorm of the game. {b} Use Iterated Elimination of Strictly Dominated Strategies to find the outcome of the game. {c} Can you think of other applications of this model
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