Chapter 13
Page 23
Problem 2:
a. As transportation costs increase, there is an increase in the profit maximizing number of stores.
One way to understand this is by considering that if transportation costs t=0, then p=R for all
buyers from one store, and therefore, the optimal profit maximizing policy is to build only one
Problem 4:
Note: There is a typo in question 4 on page 452 of the text. The references to Equations
13.18A and 13.18B should be references to Equation 13.3A and 13.3B on page 428.
a. Product differentiation is less significant because an increase of 1 in the price of good 2
increases the quantity demanded of good 1 by only 1
2 unit instead of 1 unit.
4p2.
4p1.
To obtain Firm 1’s reaction function, solve for p1:
8p2.
