Consider a standard Hotelling model of competition with quadratic transportation costs. The consumers are located uniformly along a segment of unit length. There are two firms, A and B, located at the opposite ends of the segment. Each firm has constant marginal costs 2. Each consumer buys at most one unit of product and gets utility 20. Each consumer incurs travel cost of 4 times the square of traveled distance. Find equilibrium price and profit of firm A when firms set a unform price for the entire Hotelling segment. Suppose now that firms can price discriminate between consumers located in the interval 悯 (interval 1) and those located in the interval 瞓 (interval 2). Find equilibrium prices of firm A and B on the interval 1. Answer: equilibrium uniform price of firm A = profit of firm A under uniform pricing = equilibrium price of firm A on interval 1 = equilibrium price of firm B on interval 1 = ✓

Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter15: Imperfect Competition
Section: Chapter Questions
Problem 15.3P
icon
Related questions
Question
Consider a standard Hotelling model of competition with quadratic transportation costs. The consumers are located uniformly
along a segment of unit length. There are two firms, A and B, located at the opposite ends of the segment. Each firm has
constant marginal costs 2. Each consumer buys at most one unit of product and gets utility 20. Each consumer incurs travel
cost of 4 times the square of traveled distance.
Find equilibrium price and profit of firm A when firms set a unform price for the entire Hotelling segment.
Suppose now that firms can price discriminate between consumers located in the interval
悯
(interval 1) and those located
in the interval
瞓
(interval 2). Find equilibrium prices of firm A and B on the interval 1.
Answer:
equilibrium uniform price of firm A =
profit of firm A under uniform pricing =
equilibrium price of firm A on interval 1 =
equilibrium price of firm B on interval 1 =
✓
Transcribed Image Text:Consider a standard Hotelling model of competition with quadratic transportation costs. The consumers are located uniformly along a segment of unit length. There are two firms, A and B, located at the opposite ends of the segment. Each firm has constant marginal costs 2. Each consumer buys at most one unit of product and gets utility 20. Each consumer incurs travel cost of 4 times the square of traveled distance. Find equilibrium price and profit of firm A when firms set a unform price for the entire Hotelling segment. Suppose now that firms can price discriminate between consumers located in the interval 悯 (interval 1) and those located in the interval 瞓 (interval 2). Find equilibrium prices of firm A and B on the interval 1. Answer: equilibrium uniform price of firm A = profit of firm A under uniform pricing = equilibrium price of firm A on interval 1 = equilibrium price of firm B on interval 1 = ✓
Expert Solution
steps

Step by step

Solved in 2 steps with 5 images

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Microeconomic Theory
Microeconomic Theory
Economics
ISBN:
9781337517942
Author:
NICHOLSON
Publisher:
Cengage
Managerial Economics: Applications, Strategies an…
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning
Microeconomics: Principles & Policy
Microeconomics: Principles & Policy
Economics
ISBN:
9781337794992
Author:
William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:
Cengage Learning