Q1 (25 marks) There are 7,200 residents uniformly spread in the town of Marbella that consists of only one very long street. Each resident enjoys eating at a restaurant once a week. Some prefer the French Bistro (F), others prefer to eat at the Middle Eastern Palace (M). The town is 60 miles long. The menu in each restaurant consists of only one meal. Customers go to the restaurant providing them with the lowest delivered price. A customer located at x incurs travel costs that depend the distance from the customer's house to the restaurant. It costs 0 = $0.30 per mile to get to the restaurant. The French Bistro is located 20 miles from the west end of the city (where the numbering on Marbella's only street begins at 0) and the Middle Eastern is located 40 miles from the west end. 2 (a) Graph the linear city and identify the location of the two restaurants. Label everything in the diagram. 4 (b) Suppose French Bistro charges Pp for its meal and the Middle E Palace charges PM its meal. What is the location of the customer who is indifferent between going to the French Bistro or the Middle Eastern Palace? Define all the terms you use in the derivation. Give an economic explanation for all the steps taken to find the location of the customer who is indifferent. Q1 (25 marks) There are 7,200 residents uniformly spread in the town of Marbella that consists of only one very long street. Each resident enjoys eating at a restaurant once a week. Some prefer the French Bistro (F), others prefer to eat at the Middle Eastern Palace (M). The town is 60 miles long. The menu in each restaurant consists of only one meal. Customers go to the restaurant providing them with the lowest delivered price. A customer located at x incurs travel costs that depend the distance from the customer's house to the restaurant. It costs 0 = $0.30 per mile to get to the restaurant. The French Bistro is located 20 miles from the west end of the city (where the numbering on Marbella's only street begins at 0) and the Middle Eastern is located 40 miles from the west end. 2 (a) Graph the linear city and identify the location of the two restaurants. Label everything in the diagram. 4 (b) Suppose French Bistro charges Pp for its meal and the Middle E Palace charges PM its meal. What is the location of the customer who is indifferent between going to the French Bistro or the Middle Eastern Palace? Define all the terms you use in the derivation. Give an economic explanation for all the steps taken to find the location of the customer who is indifferent
