(5) Consider the linear city where consumers who place transportation costs are uniformly distributed. In particular,...

 

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(5) Consider the linear city where consumers who place transportation costs are uniformly distributed. In particular, we examine the situation that consumers are distributed uniformly along Route 1 from San Francisco to Los Angeles. The trip from San Francisco to Los Angeles not only takes time but also requires substantial gas. There are two firms that produce a homogeneous good and compete for prices. Assume that the value of the good is V. The price of firm 1 located in San Francisco is P₁ and that of firm 2 located in Los Angeles is p2. The costs of transportation are tx for a consumer located at x if the consumer purchases the good from firm 1 in San Francisco and t(1-x) from firm 2 in Los Angeles. Thus, this consumer's surplus is V-tx-p₁ for the good from firm 1 and V-t(1-x) - P₂ from firm 2. By setting up the profit maximization problems of the two firms, find the equilibrium price when the two firms' marginal cost of production is constant at c. (5) Consider the linear city where consumers who place transportation costs are uniformly distributed. In particular, we examine the situation that consumers are distributed uniformly along Route 1 from San Francisco to Los Angeles. The trip from San Francisco to Los Angeles not only takes time but also requires substantial gas. There are two firms that produce a homogeneous good and compete for prices. Assume that the value of the good is V. The price of firm 1 located in San Francisco is P₁ and that of firm 2 located in Los Angeles is p2. The costs of transportation are tx for a consumer located at x if the consumer purchases the good from firm 1 in San Francisco and t(1-x) from firm 2 in Los Angeles. Thus, this consumer's surplus is V-tx-p₁ for the good from firm 1 and V-t(1-x) - P₂ from firm 2. By setting up the profit maximization problems of the two firms, find the equilibrium price when the two firms' marginal cost of production is constant at c.

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Hotelling linear aty Model Firm 1 san fran Fiom 23 Los Angeles 0 1 Firm 2 firm X fo... View the full answer