Question

Mountain-bike manufactures locate near a transportation hub. Each manufacturer needs 2 hectares of land to set up a one-story factory. They all manufacture 10 bikes per day, which they can sell for $200 each. Each bike costs $160 in non-land costs to produce. Each manufacturer must pay a cost of $5 per bike per mile to transport bikes to the transportation hub. Once the bikes arrive at the hub, they can be transported anywhere at no cost.

(a) Fill in the following chart that expresses each manufacturer’s bid for land rent (per hectare) as a function of distance from the transportation hub:

Distance	Total Revenue	Non-Land Costs	Freight Costs	Total Costs	WTP* for land	Production Site Size (Hectares)	Bid Rent (per hectare)
0
1
2
3
4
5
6
7
8

Answer 1

Distance	Total Revenue ($200*10)	Non-Land Costs ($160*10)	Freight Costs ($5*distance)	Total Costs	WTP* for land (total reveue-total cost)	Production Site Size (Hectares)	Bid Rent (per hectare)=WTP/2
0	2000	1600	0	1600	400	2	200
1	2000	1600	5	1605	395	2	197.5
2	2000	1600	10	1610	390	2	195
3	2000	1600	15	1615	385	2	192.5
4	2000	1600	20	1620	380	2	190
5	2000	1600	25	1625	375	2	187.5
6	2000	1600	30	1630	370	2	185
7	2000	1600	35	1635	365	2	182.5
8	2000	1600	40	1640	360	2	180

Bid rent means how the price and demand for the land changes fas the distance changes from the site of production.it represents how much is the producer willing to pay.

willing to pay (WTP) is at max the profit incurred from the business (TR-TC).