Q.1 Consider the Salop circular model. The firm's cost functions are C(q) = 0.5 . Assume that consumers of mass 1 are located uniformly along the circumference of length 1. Consumers incur transportation costs which are linear in the distance travelled along the circumference. In particular, consumers incur transportation cost of 2.5 |d | from travelling a distance d (along the circumference). A consumer buys only one unit of the product and derives 10 units of utility from consuming it. Each of the firms decide whether to enter or not in the first stage and the second stage, each simultaneously set prices. You may assume that the firms who decide to enter the market locate at an equal distance along the circumference. The number of firms which would minimize the aggregate transportation cost in the economy is