all of its output by ship. Each firm has total revenue per month of $30,000 and a monthly non-land production cost of $4,000. Each firm initially transports its output from

all of its output by ship. Each firm has total revenue per month of $30,000 and a monthly non-land production cost of $4,000. Each firm initially transports its output from its factory to the port on trucks. A firm’s freight cost is $2000 /month per mile from the port. Suppose a second transport option is developed: For a monthly fixed cost of $8000, a firm can use a train to transport its output from its factory to the port, up to a distance of 8 miles only. a. Draw two bid-rent curves for manufacturers, one for firms that only use the truck and a second for firms that only uses the train, locating port to the origin of your graph. Indicate where the firms will locate in such environment. b. Draw the optimal “merged” bid rent curve for a firm that has access to both transportation options. Which firms will choose to use what strategy?

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