ECO326H5 Study Guide - Quiz Guide: Nash Equilibrium, Substitute Good, Root Mean Square
Document Summary
Eco 326: problem set 2: consider the following variant version of hotelling"s model discussed in class. There is a linear street with length l meters. Firm 1 locates at point 0 and rm 2 locates at point: two rms sell an identical product and have same constant marginal cost equal to c (no. There are n consumers uniformly distributed along the street. Each consumer demands one unit of product and maximum willingness to pay is v (v is a large number such that every consumer would buy one product). Now suppose the transportation cost is quadratic in distance. For example, if one consumer locates at point x, then her transporta- tion cost to rm 1 equals tx2 and transportation cost to rm 2 equals t(l x)2. Nash equilibrium of this game, what is each rm"s pro t under equilibrium: this question shows another possible solution to bertrand paradox. Two rms sell par- tially substitutable goods (di erentiated products).
