Identify TWO (2) common implicit costs that are faced by the firm, with an example for each.

(b) Two bubble tea vendors compete for customers who are uniformly distributed (at 10 customers per kilometres) along a 14 km street. Each customer buys one unit of bubble tea per day, and each customer generates a profit of $2 for a vendor.

The initial location are vendor L at location 4 and vendor R at location x = 11

. (i) Illustrate the initial set of location and the unilateral deviation by vendor R of 2 km and calculate the profits for vendors L and R before and after the unilateral deviations. Determine if the initial set of locations (x = 4 and x = 11) is a Nash equilibrium. (10 marks) (ii) Infer what happens to the profit of Vendor L and Vendor R after the unilateral deviation by Vendor R. (2 marks)

(iii) Illustrate the Nash Equilibrium.