1.Wheat can only be sold at a central market place M. All producers that do not produce it at M need to haul it there in 11order to sell it and will incur transportation cost. People are willing to pay $222 per ton of wheat; its marginal production cost equals $10 per ton. Freight cost per ton and mile is given by T=2x0.5, where x denotes the distance from M in miles. (a) Calculate the maximum distance to the east of M at which the good will be produced. (b) Do the transportation cost exhibit increasing, decreasing or constant economies to distance?
2. Refer to the one-directional (just to the east) von-Thünen Model and assume that the willingness-to-pay for wheat is $42.50 per bushel. Marginal cost production equals $7.50 per bushel and fixed production cost is $10. a) We find that the marginal wheat fields (i.e., those with the maximum distance from the market place) are located 5 miles from the market place. Assuming constant marginal transportation cost, what is t? b) What is the land rent at x=0
3. Assume the distance between the resource (R ) and the market (M) is 10 miles. A firm’s procurement cost is given by PC=20+9x, where x is the distance from the resource measured in miles. The firm’s distribution cost is given by DC=(10-x)3. Again, x is the distance from the resource. (a) What is the Total Freight Cost at x=10, x=5, x=0. Where should the firm locate? (b) How does your answer to all parts under (a) distribution cost also includes a fixed (i.e., distance-independent) cost of 20?