Question

1. Consider a manufacturing firm that occupies 5 acres of land. The firm produces 20 tons of sugar per day and sells its product at a price of $80 per ton. The firm does not engage in factor (capital and land) substitution as the price of land changes. Intraurban transportation is on trucks, with a unit cost of $10 per ton per mile. The firm’s nonland cost is $300 per day. The firm exports its output via beltway.

a. Draw the firm’s bid rent curve for land for different distances from the beltway, from a distance of zero to four miles.

b. What is the slope of the bid rent curve? Please interpret its meaning.

Answer 1

a.

As transportation via trucks, it will be positively sloped for 0 to 4 miles(at the highway). With increasing distance, it will become further negatively sloped, as seen in the graph, due to using better means of transportation as Ships or aircraft.

b.

Land Size = 5 acres = 2 heactare approximately

Total Production = 20 tons

Transportation Cost = $10 per ton per mile

Total Transportation Cost = 20x10 = $200 per mile

Bid rent curve:

Slope = Transportation Cost per mile/(Landsize)

= $100/mile.

**Hope this helped. Please Upvote**