Consider the linear city (Hotelling's) model westudied in class. Firm 1 and Firm 2 are the twofirms in the city. Consider each of thefollowing statements in isolation. Whichstatement is correct?Group of answer choicesSuppose city zoning laws force Firm 1 andFirm 2 to locate at either end of the city. Bothfirms will therefore set price close to marginalcostSuppose a regulator sets the price for bothfirms at p; both firms will therefore choose tolocate as close to each other as possibleIf consumers are evenly spread throughoutthe city, firms are more likely to locate in themiddle of the cityIf transport costs are low, the firms will exploitthis by raising priceNone of the other answers are correct

The following points determine how the firm choses to establish itself - The determinants are:…

Answered: If consumers are evenly spread…

If consumers are evenly spread throughout the city, firms are more likely to locate in the middle of the city If transport costs are low, the firms will exploit this by raising price

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.8P

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