Suppose that firms are located in a circle on an island. You are given transportation costs, fixed costs, variable costs, and demand (assume that customers are spread evenly along the circle). If the distance around the island is 50 miles and there are two restaurants equally spaced on the island and each of 100 people are equally spaced around the island and eat a meal a day at a restaurant, what will be the average distance traveled to and from restaurants in a day's time?

Question

Quizplus · Accepted Answer

Since the two restaurants are equally spaced on the island, they are 25 miles apart from each other (50 miles divided by 2). Since demand is evenly spread out along the circle, each restaurant serves 50 customers. The average distance traveled to and from a restaurant for each customer would be half the circumference of the circle divided by the number of customers, or (50/2)/50 = 0.5 miles. Therefore, the average distance traveled to and from a restaurant in a day's time would be 0.5 miles * 100 customers = 50 miles. However, the question asks for the average distance per person, so we divide 50 miles by the number of customers, which results in 50/100 = 0.5 miles or 12.5 miles round-trip. Therefore, the correct answer is C.

Suppose That Firms Are Located in a Circle on an Island