Question 23 relies on the following prompt: Two street vendors (Vendor I and Ven
ID: 1125836 • Letter: Q
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Question 23 relies on the following prompt: Two street vendors (Vendor I and Vendor 2) with mobile carts produce the same good which they sell at the same price. Customers are located along a linear boardwalk with six locations (Location A through Location F), with a different number of customers in each location, as pictured below: 12 A8 So, there are 12 customers in location A, 4 in B, 6 in C, 2 in D, 8 in E and 18 in F. There are 50 customers total. Customers will make a purchase from whichever vendor is closest to them, and equally close customers will be split evenly between Vendor 1 and Vendor 2. The vendors CAN locate in the same location (so, both could locate in location A). 23. Where will Vendors 1 and 2 locate in equilibrium? (For example: If you think Vendor 1 will locate in A and Vendor 2 will locate in B, write (A, B) as your answer). 24. Using simple language that an average 4th grader would understand, define the concept of "equilibrium” in the game theoretic sense.Explanation / Answer
23) At equilibrium vendor 1 and 2 will locate at "D and E". At D vendor 1 will be serving all the consumers at his left that is A, B, C and D. And at E the second vendor will be serving all the consumers at his right that is E and F. At this point both the vendors will be serving 24 and 26 consumers respectively.
24) In a game theory, equilibrium is a situation where one player alone can't deviate from that point unilaterally or he will face loss. In the above game, point "D and E" is the equilibrium. From this point, if vendor 1 moves further right say to E he will gain 4 more customers but then vendor 2 will move to D that will increase his consumers count as compared to both of them sitting at E.
And again if vendor 2 moved to E then vendor 2 will move back to D which was his original place. Any point away from D and E will cause huge loss so there is no incentive to follow that. So equilibrium is a point or the strategy in the game from where no player wants to deviate unilaterally.
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