Assume That Total Demand in a Market Is 1 and That

question 80

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 = \(\frac { 1 } { 2 }\) \(\frac { 1 } { 2 }\)

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Definitions:

Call Option

A financial contract that gives the buyer the right, but not the obligation, to buy a stock, bond, commodity, or other asset at a specified price within a specific time period.

Actual Value

The actual value is the genuine, intrinsic value of an asset, without any speculation or market influence; often considered the most accurate value of an asset.

Time Value

The idea that money available now is worth more than the same amount in the future due to its earning potential.

Intrinsic Value

The actual value of a company or an asset based on underlying perception of its true value including all aspects of the business.