There are two sandwich shops, shop 1 and shop 2, that are 4 miles apart. All consumers of sandwiches live on the straight line connecting the stores. There are 10,000 consumers uniformly distributed on this line between the two stores. A consumer at point x on the line between store 1 and 2 is located x miles from store 1 and 4-x miles from store 2. Suppose each consumer has a transportation cost of $2 per mile. The cost including transportation cost for a consumer located at x to purchase from shop 1 is p₁+2x and the analogous price to purchase from shop 2 is p₂+2(4-x). Each consumer purchases one sandwhich from the shop with the lowest cost including transportation cost. Suppose both shops have the same marginal cost of each sandwhich equal to $3. When shop 1 picks p₁it takes as given p₂ Analogously, when shop 2 picks p₂ it takes p; as given. Suppose shop 1 thinks that shop 2 is going to set p₂-$13. What is the optimal price for shop 1 in this this case? 12 Suppose shop 1 thinks that shop 2 is going to set p₂-$12. What is the optimal price for shop 1 in this this case? Thank through why neither of these is an equilibrium of price competition between the two shops. In the Nash equilibrium of this game, both firms set price equal to 11
There are two sandwich shops, shop 1 and shop 2, that are 4 miles apart. All consumers of sandwiches live on the straight line connecting the stores. There are 10,000 consumers uniformly distributed on this line between the two stores. A consumer at point x on the line between store 1 and 2 is located x miles from store 1 and 4-x miles from store 2. Suppose each consumer has a transportation cost of $2 per mile. The cost including transportation cost for a consumer located at x to purchase from shop 1 is p₁+2x and the analogous price to purchase from shop 2 is p₂+2(4-x). Each consumer purchases one sandwhich from the shop with the lowest cost including transportation cost. Suppose both shops have the same marginal cost of each sandwhich equal to $3. When shop 1 picks p₁it takes as given p₂ Analogously, when shop 2 picks p₂ it takes p; as given. Suppose shop 1 thinks that shop 2 is going to set p₂-$13. What is the optimal price for shop 1 in this this case? 12 Suppose shop 1 thinks that shop 2 is going to set p₂-$12. What is the optimal price for shop 1 in this this case? Thank through why neither of these is an equilibrium of price competition between the two shops. In the Nash equilibrium of this game, both firms set price equal to 11
Chemistry: Principles and Reactions
8th Edition
ISBN:9781305079373
Author:William L. Masterton, Cecile N. Hurley
Publisher:William L. Masterton, Cecile N. Hurley
Chapter1: Matter And Measurements
Section: Chapter Questions
Problem 38QAP: A gasoline station in Manila, Philippines, charges 38.46 pesos per liter of unleaded gasoline at a...
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Transcribed Image Text:There are two sandwich shops, shop 1 and shop 2, that are 4 miles apart. All consumers of sandwiches live on the straight line
connecting the stores. There are 10,000 consumers uniformly distributed on this line between the two stores.
A consumer at point x on the line between store 1 and 2 is located x miles from store 1 and 4-x miles from store 2. Suppose each
consumer has a transportation cost of $2 per mile. The cost including transportation cost for a consumer located at x to purchase from
shop 1 is p₁+2x and the analogous price to purchase from shop 2 is p₂+2(4-x). Each consumer purchases one sandwhich from the shop
with the lowest cost including transportation cost.
Suppose both shops have the same marginal cost of each sandwhich equal to $3.
When shop 1 picks p₁it takes as given p₂ Analogously, when shop 2 picks p₂ it takes p; as given.
Suppose shop 1 thinks that shop 2 is going to set p₂-$13. What is the optimal price for shop 1 in this this case? 12
Suppose shop 1 thinks that shop 2 is going to set p₂-$12. What is the optimal price for shop 1 in this this case?
Thank through why neither of these is an equilibrium of price competition between the two shops. In the Nash equilibrium of this game,
both firms set price equal to
11
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