Town 1 and Town 2 are very similar cities, because each city has exactly one McDonald's and are of the same size. Each resident demands one hamburger. A resident of Town 1 who wishes to buy a hamburger in Town 2 must bear a transportation cost of T= $3. Similarly, a resident of Town 2 who wishes to buy a hamburger in Town 1 must bear a transportation cost of T = $3. Solve the following problems:
1) Solve for the equilibrium prices p1 and p2 and quantities assuming that McDonald's has the technology for producing hamburgers at no cost. Show your derivation.