Consider a simple Hotelling city setup. There are two firms located...

Question

# Consider a simple Hotelling city setup. There are two firms located...

Consider a simple Hotelling city setup. There are two firms located at either end of a street of length
one mile (so, Firm 1 is at 0 and Firm 2 is at 1). 100 consumers are uniformly located along the
street. Consumers bear a transportation cost of \$t per unit of distance. Each consumer will buy 1 and
only 1 unit of the good. The firms can produce the good at zero marginal cost. Denote Firm 1's price p1
and Firm 2's price p2.

a. Call x (where x must be between 0 and 1 inclusive), the location of the consumer who is
indifferent between buying from Firm 1 and from Firm 2. Write down a formula for x. (Hint: it
should have a p1 in it, a p2 in it, and a t in it!).

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