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).

5. Exercise 4.5 Roger is a regular consumer of personalized greeting cards with Hofmann photographs. Its demand curve is given by q = 31 -0.5P. Rogelio is a representative consumer of this type of cards so we can assume that the rest of the customers, 1,000 in total, have the same demand curve. The supplier company, Hofmann, can produce each card at a constant average and marginal cost of €2. In the market of personalized greeting cards there are many other companies that offer very similar cards. Consider the following 4 scenarios: (i) Hofmann acts as a perfect competitor. ii) Hofmann acts as a monopolist. iii) Hofmann acts as a first-degree discriminator monopolist iv) Hofmann acts as a second-degree discriminator monopolist and offers each of its customers the possibility to buy the first 15 cards at a unit price of € 32, the next 5 (from € 16 to 20) at a unit price of € 22 and the following 10 (from € 21 to 30) at a unit price of €2. Calculate, for the 4 scenarios proposed, the…

You are the manager of Taurus Technologies, and your sole competitor is Spyder Technologies. The two firms' products are viewed as identical by most consumers. The relevant cost functions are C(Q) = 4Q;, and the inverse market demand curve for this unique product is given by P= 100 -2 Q. Currently, you and your rival simultaneously (but independently) make production decisions, and the price you fetch for the product depends on the total amount produced by each firm. However, by making an unrecoverable fixed investment of $200, Taurus Technologies can bring its product to market before Spyder finalizes production plans. (Assume Taurus Technologies is the leader in this scenario.) What are your profits if you do not make the investment? $ What are your profits if you do make the investment? Instructions: Do not include the investment of $200 as part of your profit calculation. $ Should you invest the $200? O Yes - the cost of establishing the first-mover advantage exceeds the benefits.…

Two organic emu ranchers, Bill and Ted, serve a small metropolitan market. Bill and Ted are Cournot competitors, making a conscious decision each year regarding how many emus to breed. The price they can charge depends on how many emus they collectively raise, and demand in this market is given by Q = 150 – P. Bill raises emus at a constant marginal and average total cost of $10; Ted raises emus at a constant marginal and average total cost of $20. Find the Cournot equilibrium price, quantity, profits, and consumer surplus. Suppose that Bill and Ted merge, and become a monopoly provider of emus. Further, suppose that Ted adopts Bill’s production techniques. Find the monopoly price, quantity, profits, and consumer surplus. Suppose that instead of merging, Bill considers buying Ted’s operation for cash. How much should Bill be willing to offer Ted to purchase his emu ranch? (Assume that the combined firms are only going to operate for one period.) Has the combination of the two…