Tlalpujauha (pronounced Tlal-pooh-how-a), Mexico, is famous for its bibelot. In fact, it is known as the "Town of Eternal Christmas". In 2005, it was declared a Pueblo Magico (magical town). Once a gold mining town, it now creates artisan glass Christmas tree ornaments. In Tlalpujauha, it's Christmas every day. Every store creates and sells its own ornaments and travelers can watch the artisans making them.

Everyone who travels there has to buy a glass ornament (not by law, but because one just MUST have one). Tourists travel to Tlalpujauha by one of a number of tour bus companies. Tourists know that different shops charge different prices, but they don't know which shop(s) charge the lowest price and can't find out before arriving in the town.

Assume:

• Tourists will only travel to Tlalpujauha once and shops do not sell online - so this is the only opportunity to buy the famous ornaments.
• While the ornaments are all different, tourists really don't care which one they get since every ornament is unique - tourists are basically indifferent.
• Daily demand is Q = 500 - 0.5P.
• Busses randomly park in the town and tourists are evenly distributed throughout the shopping district.
• Shops are evenly distributed in the shopping district.
• Shops have a constant marginal cost of production of 20 pesos.

1. Assume that it costs a tourist a constant cost of C to check a shop's price or buy an ornament. So, if a tourist visits one shop, the cost of buying an ornament is P + C where P is the price the shop charges. Therefore, visiting two shops means the costs of buying is P + 2C, three is P + 3C, etc. At which shop do the tourists purchase their ornament? Explain.
2. What price does each shop charge for its ornament? Explain.
3. Assume that an enterprising Tlalpujauha resident creates an app that tourists can use to discover the shops' prices before they arrive. Does this change what each shop charges for its ornaments? Explain.