Corresponding marginal transportation cost

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Reference no: EM133637248

Question

Office firms, office workers, and agricultural firms compete for land. Their respective bid rent functions are given by:

Office firms R.=201-5x,

office workers R =180-2x, and agricultural firms R,=140.

where R denotes the bid rent and x the distance from the city center.

a) Where does each bidder locate? (calculate the respective distances from the city center)

b) Now assume that the city imposes a fuel tax on offices and on office workers resulting in an increase in their corresponding marginal transportation cost by 1. How does this change your answer to (a)?

c) Now assume that, in addition to (b), the entire revenue from the fuel tax is paid to office workers (not to offices). The government sends out checks resulting in an income growth of $3 for each worker. How does this change the respective locations.

d) Now assume that, in addition to all effects mentioned under (b) and (c ), climate change reduces profits (and bid rents) of agricultural firms by 4. How does this change the respective locations.

Reference no: EM133637248

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