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(Solved): 2. Consider a linear city where consumers with unit demand are uniformly distributed along a line w ...
2. Consider a linear city where consumers with unit demand are uniformly distributed along a line with length 1 . Two firms sell the same good produce with MC=c. Firm 1 locates at a?0, firm 2 locates at 1?b, where b?0. Assume a?1?b. Assume there is transportation cost for consumers traveling to the firm to purchase: f(d), where d is the distance to the frm. Assume the two firms first, set their locations and then compete in prices. (20 points) (a) Show that there will be maximum differentiation if f(d)=td2. (b) Show that there will be minimum differentiavion if f(d)=td.