A firm that produces potato chips occupies four hectares of land. The firm produces 10
tons of output per day and sells its output at a price of $240 per ton on the export market.
The firm does not engage in factor substitution as the price of land changes. Intra-urban
transportation is on trucks, with a unit cost of $12 per ton per mile. The firm’s non-land
cost is $560 per day. The firm exports its output via circumferential highway (i.e.,
beltway around the city). That is, it wants to be near the beltway.
(a) Sketch the firm’s bid-rent curve for land for different distances from the beltway,
from a distance zero to five miles.
(b) What is the bid-rent at the beltway? What is the slope of the bid-rent function? Show
your work.
Sample Solution
