Suppose a transport cost-oriented firm consumes two inputs (one from source I1, the other from source...

 

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Suppose a transport cost-oriented firm consumes two inputs (one from source I1, the other from source I₂) in order to produce one output, which is consumed at the output market M. M H I₁ 1₂ a) Assume M's monetary weight equals $10 and the monetary weights for 1₁ as well as for I2 equal $5 each. Where, if any, is the Nash Equilibrium? b) Now assume the monetary weight of input source I₁ increases to $20 and the one for 12 falls to $0; M's monetary grows to $20; where will the company locate now? c) Is it possible that the firm's transfer-cost-minimizing location can be anywhere? If yes, under what circumstances? If no, why not? Suppose a transport cost-oriented firm consumes two inputs (one from source I1, the other from source I₂) in order to produce one output, which is consumed at the output market M. M H I₁ 1₂ a) Assume M's monetary weight equals $10 and the monetary weights for 1₁ as well as for I2 equal $5 each. Where, if any, is the Nash Equilibrium? b) Now assume the monetary weight of input source I₁ increases to $20 and the one for 12 falls to $0; M's monetary grows to $20; where will the company locate now? c) Is it possible that the firm's transfer-cost-minimizing location can be anywhere? If yes, under what circumstances? If no, why not?

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a If the firm is located at source I then the cost of production is ... View the full answer