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This question is referring to the hotelling model In industrial organization economics
The market for super-premium ice creams is dominated by Ben&Jerry's and Haagen-Dazs, which compete with non-overlapping flavours and a "chunky" vs. "smooth" concept, depending on the presence of mix-ins (mix-ins are extra ingredients like chocolate, caramel, candy, and baked goods that have been added to the ice cream). Using a unit segment to represent the smoothness of the ice cream, Haagen-Dazs (A) produces perfectly smooth flavours (i.e. is located at 0), while Ben&Jerry's (B) produces perfectly chunky flavours (i.e. is located at 1).
Ice cream consumers differ in their preference for smoothness and are uniformly distributed along the segment. Each consumer has a disutility (in addition to the price) from departing from their favourite smoothness, equal to a unit transport cost of t = 2.
Both firms have the same marginal cost c = 10 and no fixed costs.
1. Write the total cost of buying from A and B for a consumer located at z.
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Explain how the application of the PDCA cycle can support a competitive strategy of low cost leadership.
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