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Consider two companies (A and B) competing with each other on a product attribute. The market's and the company's differentiation on this attribute is as follows:

The market is represented by a straight line, with the left end at point 0 and the right end at point 10. This line shows the possible values of the attribute that the companies could choose for their own products.

Company A is located at point 3. Its price is $10.

Company B is located at point 7. Its price is $16.

Each consumer has his or her own preference for this attribute. The preferences of all consumers are distributed uniformly along the line.

The consumers use the following criterion to evaluate the total cost of purchasing from a company: p+ 3d, where p is the price of the company's product, and d is the "psychic cost" caused by the distance from the consumer to the company.

Answer the following questions:

(1)Is this horizontal differentiation or vertical differentiation between A and B?

(2)A consumer is located at 5, will she buy A or B? Show your calculation.

(3)A consumer is located at 8, will she buy A or B? Show your calculation.

(4)A consumer is located at 6, will she buy A or B? Show your calculation.

(5)There is a total of 5 million consumers. Each of them will buy only one product, either from A or B. What are the sales volumes of A and B? Show your calculation

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