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Unformatted text preview: INDUSTRIAL ORGANISATION  Problem set 4 Semester 2, 2010 1 Problem set 4 1. Consider the location model of product differentiation we discussed in class. As in class, assume that the city is of length 1 unit, consumers are uniformly located along the city, firms have constant marginal costs of c per unit, and no fixed costs, and each consumer buys one unit of the good. (a) In class, we assumed that both firms produced products that were identical except for one characteristic which we called location. In this question, we will see what happens if there is a difference in the quality of the products produced by each firm. Suppose that consumer i s utility derived from buying product j is given by the expression u i j = u j t ( l i x j ) 2 p j , for j = 1 , 2 where u j provides some indication of the quality of product j , l i is the location of consumer i , x j is the location of product j , and p j is the price of product j ....
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This note was uploaded on 11/02/2010 for the course ECOS 3005 taught by Professor Douglas during the Three '10 term at University of Sydney.
 Three '10
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