Consider an industry consisting of three firms located respectively at points 0 1/4 and 1 on a line
Consider an industry consisting of three firms 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 fixed costs There are 10
consumers uniformly distributed on this linear city Consumers have unit demands and derive the
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same value of consuming the products of all firms The travel cost is t > 0
1 Suppose that the market is covered (all consumers consume) What is the demand that
each firm faces? How does it depend on own and rival price? Why?
2 Suppose that firms 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