Answer to Question #170984 in Microeconomics for Maria

Question

Two firms, A and B, rent identical bikes on a beach of unit length: firm A is in extreme 0, B in extreme 1. Each firm has MC = 2. There are many consumers evenly distributed on the beach who want to rent a bike.On the beach there is a strong wind from the right, such that walking against the wind is more difficult than doing it in favor of the wind: those who go from the left to the right have a transportation cost equal to τ per unit walked; those who goes from the right to the left has a transportation cost equal to δ <τ per unit walked.Indicating with p_A and p_B the rental prices of the bikes of firms A and B, respectively, determine the point x* at which the consumer is indifferent between renting the bike from one or the other firm.Find the demand functions of the two firms.Find the optimal response functions of the two firms, assuming they compete on prices.Find the two equilibrium prices.

Answer 1

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