What are the equilibrium prices and quantities

Reference no: EM13238494

Consider a linear city Hotelling model. There are two firms, A and B, located at the (30) ends of the product space. The length of the product space is 3 and transportation costs are 1 times the distance traveled. Each consumer has a baseline valuation of 9 and each firm has a constant marginal cost of 4. The indirect utility function for each consumer
is uA(x) = 9-pA -1(x) and uB(x) = 9-pB -1(3-x) depending on whether you buy from firm A or firm B. Answer the following questions for the competitive equilibrium if it exists.

(a) What is each firm's best response function?

(b) Are the two goods strategic complements or strategic substitutes?

(d) Find the profits of each firm and represent profits graphically in the preference space.

(e) Find the consumer surplus and represent this measure graphically in the preference space.

Reference no: EM13238494

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