Consider the following version of the Hotelling location model. There are two vendors - A and B - selling softdrinks. The two firms simultaneously choose to locate anywhere along a street that is 1 unit in length (the street runs from 0 to 1). Their production costs are zero and the price for softdrink is set by the government at p. Consumers are located uniformly along the street. Each consumer always buys 1 unit of the product, but incurs a cost from travelling to the vendor, so that they buy from the closest vendor. In the Nash equilibrium of the game, • None of the other answers are correct. • A locates at 1/3 and B chooses to locate at 2/3 (or vice versa). • A and B locate in different corners. • Both A and B locate in the middle of the street. • A locates at 0.25 and B chooses to locate at 0.75 (or vice versa).
Consider the following version of the Hotelling location model. There are two vendors - A and B - selling softdrinks. The two firms simultaneously choose to locate anywhere along a street that is 1 unit in length (the street runs from 0 to 1). Their production costs are zero and the price for softdrink is set by the government at p. Consumers are located uniformly along the street. Each consumer always buys 1 unit of the product, but incurs a cost from travelling to the vendor, so that they buy from the closest vendor. In the Nash equilibrium of the game, • None of the other answers are correct. • A locates at 1/3 and B chooses to locate at 2/3 (or vice versa). • A and B locate in different corners. • Both A and B locate in the middle of the street. • A locates at 0.25 and B chooses to locate at 0.75 (or vice versa).
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Consider the following version of the Hotelling location model. There are two vendors - A and B - selling softdrinks. The two firms simultaneously choose to locate anywhere along a street that is 1 unit in length (the street runs from 0 to 1). Their production costs are zero and the price for softdrink is set by the government at p. Consumers are located uniformly along the street. Each consumer always buys 1 unit of the product, but incurs a cost from travelling to the vendor, so that they buy from the closest vendor. In the Nash equilibrium of the game,
• None of the other answers are correct.
• A locates at 1/3 and B chooses to locate at 2/3 (or vice versa).
• A and B locate in different corners.
• Both A and B locate in the middle of the street.
• A locates at 0.25 and B chooses to locate at 0.75 (or vice versa).
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