In a 1000 feet length of the beach, there are 1,000 consumers uniformly distributed. Two ice-cream...

In a 1000 feet length of the beach, there are 1,000 consumers uniformly distributed. Two ice-cream shops want to enter this beach and sell ice-cream with a price p =100. All consumers demand one ice-cream at the nearest shop, and a consumer who is located t feet away from the shop obtains utility u = 1100 - p - t. Assume that ice-cream shops can produce and sell without any cost.

a. Suppose two ice-cream shops can choose their locations freely. Where do they choose? Is this location choice stable?

b. Suppose now the beach owner chooses the locations of ice-cream shops. She wants to maximize social welfare (aggregate utility of all consumers). Where does she assign two ice-cream shops? Is this location choice stable?

c. Comparing cases a and b, are the profits of each firm different? How about social welfare? (You do not

have to calculate the exact number, but should be able to explain intuitively.)

please explain as thoroughly as possible with step by step!!

Expert Solution

Rahul Sunny answered 2 years ago

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