Assume That Total Demand in a Market Is 1 and That

question 67

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.

-The demand at Firm 1 is given by

• A)a + \(\frac { 1 + b - a } { 2 }\)
• B)a + \(\frac { 1 - b - a } { 2 }\)
• C)a - \(\frac { 1 + b - a } { 2 }\)
• D)a - \(\frac { 1 - b + a } { 2 }\)

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Definitions:

Equity

represents the value of the shares issued by a company, denoting the ownership interest held by shareholders in the corporation.

Call Option

A monetary agreement allowing the possessor the choice, yet not the compulsion, to acquire a stock, bond, commodity, or any other asset for a prearranged price within a set interval.

Out-Of-The-Money

A term used in options trading to describe an option that has no intrinsic value. For a call option, this is when the strike price is above the market price of the underlying asset; for a put option, it's the opposite.

Exercising Option

The act of utilizing the right to buy or sell an underlying asset at a predetermined price before the expiration date.