Consider an industry consisting of three Ã?rms located respectively at points 0 1 4 and 1 on a li

Consider an industry consisting of three Örms located respectively at points 0, 1 4 , and 1 on a linear city of length 1 Firms face marginal cost of production $2 and no Öxed costs There are 10 consumers uniformly distributed on this linear city Consumers have unit demands and derive the same value of consuming the products of all Örms The travel cost is t > 0 1 Suppose that the market is covered (all consumers consume) What is the demand that each Örm faces? How does it depend on own and rival price? Why? 2 Suppose that Örms simultaneously choose prices and t = $1 What is the Nash equilibrium of this game? Discuss the relationship between the equilibrium prices and the marginal cost of production

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