# Suppose a store is located in the middle of Main Street

Question

(1) Suppose a store is located in the middle of Main Street, which is one mile long.

Marginal transportation cost is given by t=$80 per mile round trip. The average

production cost of the product sold is given by c=$32. Customers value each unit of our

store’s product at V=$50.

(a) If the firm wants to sell to only 25% of all people on Main Street, what will its

price be? Is this doable?

(b) Now assume it wants to sell to 50% of the people, what will its price be? Is this

doable?

(2) (unrelated to question (1). Assuming a firm wants to cover half of the market (assume

the length of the market is normalized at a value of one), what is this firm’s profit

function (provide an abstract equation).

Originally posted 2017-01-07 13:19:43. Republished by Blog Post Promoter