Assume That Total Demand in a Market Is 1 and That

Multiple Choice

Assume that total demand in a market is 1 and that customers are uniformly spread across the line segment from 0 to 1.There are only two companies in the market and there is no cost or service advantage held be either Firm 1 or Firm 2.Firm 1 locates at point a,and Firm 2 locates at point 1-b as shown in the figure.A customer chooses one firm or the other solely on the basis of distance travelled.

-If the two firms compete on price and the customer incurs transportation cost,it may be optimal for the two firms to locate at the point(s)

A) a = 0;b = 1
B) a = 1 - 3b;b = $\frac { 1 - a } { 3 }$
C) a = ;b = 1 - 3a $\frac { 1 - b } { 3 }$
D) a = ;b = $\frac { 1 } { 2 }$ $\frac { 1 } { 2 }$