Problem set 07

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Unformatted text preview: Econ 121 – Fall 2010 UC Berkeley Professor Cristian Santesteban Problem Set 7 Due: Thursday, November 18 by 11:15am Problem 1 Burgers, Inc is currently the sole fast food chain in Line City, a city one‐mile long, with a single street, and one thousand consumers distributed uniformly along the street. The price for the BigB, the only product sold by Burgers, Inc is set nationally at $4, so the local Line City manager’s decision is limited to choosing the number and location of its stores. Each store costs $600K to open and lasts indefinitely. Each consumer buys one burger per week at the current price of $4. However, no consumer will walk for more than a quarter mile to buy a burger. Operating costs are $1 per burger. The interest rate is 0.1% per week. [Hint: The discount factor δ is related to the interest rate r as follows: δ = 1/(1+r).] a) Suppose B...
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