Question: Need help answering this. PART 2 (64 POINTS-8 POINTS EACH PART): ANSWER 2 OF THE FOLLOWING 3 QUESTIONS OPTION 1: (LINEAR CITY) Consider the linear

Need help answering this.

PART 2 (64 POINTS-8 POINTS EACH PART): ANSWER 2 OF THE FOLLOWING 3 QUESTIONS OPTION 1: (LINEAR CITY) Consider the linear city model that has length 1. Firm 1 is located . 1 of a mile from the beginning of the city and Firm 2 is located .9 of a mile from the beginning of the city. 100 consumers are uniformly distributed throughout the city. Assume that consumers buy one product from the firm whose price plus transportation costs is lowest. is. Transportation costs are quadratic such that traveling a distance of d would cost the consumer d2*t where t =2. Assume marginal cost=ATC=2. (i) Derive the demand for firm 1 as a function of P1 and P2. (ii) Derive the demand for firm 2 as a function of P1 and P2. (iii) Solve for the optimal price firm 1 should charge given firm 2's price: P1(P2) and the the optimal price firm 2 should charge given firm 1's price: P2(P1) (iv) Solve for the Nash equilibrium prices each firm would charge. Does either firm have a location advantage

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