Author Question: Many people have observed that retail gas stations tend to operate very closely to one another. ... (Read 23 times)

ENagel · **on:** Jun 29, 2018

Many people have observed that retail gas stations tend to operate very closely to one another. Explain the logic behind having a gas station at each corner of an intersection.

What will be an ideal response?

Question 2

What are the assumptions of the Heckscher-Ohlin theorem?

What will be an ideal response?

Ahernandez18 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

In the attempt to maximize profits firms find it in their interest to differentiate themselves from their rivals. However, they don't want to be too different as to alienate large numbers of consumers. If there is a gas station located on one corner of an intersection and new entrants are deciding where to locate they could certainly locate farther away from the existing firm. But this may result in losing customers as potential patrons will have already stopped at the competitor's station. Locating closer to their rivals diminishes the product differentiation that the incumbent firms have established for themselves.

Answer to Question 2

It assumes that products can be produced using differing proportions of inputs and that inputs are mobile between sectors in each economy, but that factors are not mobile between economies.