Question
Suppose that in a linear city there is only one restaurant, located at the center of the street of length 1 km. Assume that the
Suppose that in a linear city there is only one restaurant, located at the center of the street of length 1 km. Assume that the restaurant's production cost is 0. Consumers are uniformly distributed on the street, which is the interval [0, 1], where at each point on the interval lives one consumer. Suppose that the transportation cost for each consumer is $c per km. The utility of a consumer who lives x kms from the restaurant is u = v - p - cx where p is the price of a meal and v is the gross benefit of eating at the restaurant and is a constant. If the consumer does not eat at the restaurant, then her utility is u=0 . Provide a full characterisation of the equilibrium.
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