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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

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

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Consider the linear city (Hotelling's) model we studied in class. Firm 1 and Firm 2 are the two firms in the city. Consider each of the following statements in isolation. Which statement is correct? Group of answer choices Suppose city zoning laws force Firm 1 and Firm 2 to locate at either end of the city. Both firms will therefore set price close to marginal cost Suppose a regulator sets the price for both firms at p; both firms will therefore choose to locate as close to each other as possible 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 None of the other answers are correct
Transcribed Image Text:Consider the linear city (Hotelling's) model we studied in class. Firm 1 and Firm 2 are the two firms in the city. Consider each of the following statements in isolation. Which statement is correct? Group of answer choices Suppose city zoning laws force Firm 1 and Firm 2 to locate at either end of the city. Both firms will therefore set price close to marginal cost Suppose a regulator sets the price for both firms at p; both firms will therefore choose to locate as close to each other as possible 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 None of the other answers are correct
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