Two firms produce a similar product and are located 20 miles apart along a linear market....

Two firms produce a similar product and are located 20 miles apart along a linear market.

They have a constant marginal and average variable cost equal to 5 dollars per unit of output. It

costs one dollar to transport the product one mile. Consumers are uniformly distributed along the

market. Draw a graph of the market and indicate the optimal price for each firm to charge, how

much of the market each firm serves, and how much profits each firm receives. Explain how this

model generalizes to a circular market with free entry and variable location. What role do profits

play in establishing an equilibrium in the generalized model.

Solutions

Expert Solution

Rahul Sunny answered 2 months ago

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