Question

Consider a crowded beach where the population of beach-goers is uniformly distributed acrossits twenty-mile length. The length of the beach is represented by the line on the accompanying diagram.

Suppose a long-standing ice cream stand, Carl's Cones, is located at point C. Points A, B, C, D, and E are all suitable locations for a new ice cream stand.
Suppose a new entrant offering identical products to Carl's is looking to enter the market. Since their products are identical, customers will go to the stand that is closest to them on the beach. Order the different points according to how many customers the new business would attract there

Answer 1

Hotelling's model suggests that monopolistic competitors selling identical products aim to position themselves close to one another to capture the maximum number of customers who prioritize convenience. This implies that a new ice cream stand on a uniformly populated beach should locate itself at the midpoint between the existing stand and the beach end, turning both into intervening opportunities for beach-goers.

Step-by-step explanation:

According to Harold Hotelling's site location model, businesses with identical products will seek to position themselves in a manner that captures the greatest number of customers, who will choose the closest vendor due to the convenience and similarity in products offered. When two monopolistic competitors are present in a market, the optimal location for each is to be as close to the other as possible, splitting the market evenly.

This behavior is rooted in the desire of customers for convenience, which in the case of the beach with uniformly distributed population, suggests that a new ice cream stand would maximize its customer base by locating itself equidistant from Carl's Cones and the end of the beach in either direction. The stand should optimally be placed at the midpoint between Carl's Cones and the extremity of the beach, in order to draw the new customers traveling towards the end of the beach, while also capturing any customers of Carl's Cones who find the new location closer. This effectively makes each stand an intervening opportunity for customers located between them.