Question

4. There are two firms whose operations are in the same market. Each firm sells their product for a price of $1. Firm A sells an average of 100,000 units per month, while firm B sells an average of 200,000 units. Firm A has intermediate input costs of $50,000 per month; intermediate input costs are $150,000 per month for firm B. Both firms face freight costs of $0.03 per unit per mile and labor costs of $0.15 per unit - $0.01 per unit for each mile from the city center. Firm A’s function for land is L = x, where L is the acres of land desired and x is the distance from the factory to the city center in miles. Firm B’s function is L = 1.5x.

a. Given these facts, build a bid-rent function for each firm over distances of 1 mile to 10 miles from the market.

b. At a distance of 7 miles from the market, which firm is more likely to bid the highest rent for land? How many acres of land will be demanded by that firm? What will be the rent bid per acre?

There is no reference? This is just a random question in an assignment.

Answer 1