Sevaral firms produce a similar product. Their customers locations are spread ou

Question

Sevaral firms produce a similar product. Their customers locations are spread out uniformly on a line from A to B. Every customer buys the product from the firm closest to their location. The firm can be located on A. B or C as shown in the figure where th distance between A and C is the same as the distance between C and B lf there are four firms, te equilibrium in fm's location is: Hint: For each of the options belou, you ean cheek if for the proposed location configuration, a firm has an optimal deviation. Ifit is so, then that is not an equilibrium Oone firm in A, one in B8 and two inC O two firms in A and two in B O two firms in C and ether two firms in A or two firms in B O All four firms in A or all four firms in B

Explanation / Answer

If the firms are located at equal distances they can avoid competition among each other and absorb all the customers of the entire area.The best strategy is for one firm to be at A and others at B and C the other 2 at C because C is the centre.

Answer-A

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