Consider two firms, located at each end of a street of length 1. There are customers uniformly distributed along this street. Customers incur transportation costs TC = 2x2, where x is the distance they need to travel in order to purchase the product. Each customer desires only one unit of the product, which they all value at V . The costs of production for both firms are zero.
a) Find the optimal prices P1 and P2 that these firms will set and their resulting profits, assuming the entire market will be served.
b) What condition needs to hold for the entire market to be indeed served?
c) Repeat points a) and b) for a different length of the street, say length is 10.
d) Repeat (a)and (b) for a length of 1,but TC=5x2.
e) Notice how your prices change when you increase either your street or your transportation