Consider a version of the manufacturing bid-rent curve, but with two sectors. Let x1 and x2...

Transcribed Image Text:

Consider a version of the manufacturing bid-rent curve, but with two sectors. Let x1 and x2 be the distance that firms in sector 1 and sector 2 locate away from the city center. Firms face freight, labor, and land costs, but no intermediate goods cost. To simplify the algebra, let's assume that firms in each sector use only one unit of land, and thus the land cost LC(x) = P(x) for i = 1,2. The labor costs for each firm as a function of distance to center is given by: L(x1)=20-A1 * x1 L(x2)=30-A2 * x2 The freight costs for each firm as a function of distance is given by F(x)=(Bi+3) * xi a. (2 points) Write out the profit function for a firm in each sector. You should provide two equations. Do not assume that revenue is equal in each sector. b. (3 points) Use your answer from part a to derive the bid-rent curves for manufacturing firms in each sector. Consider a version of the manufacturing bid-rent curve, but with two sectors. Let x1 and x2 be the distance that firms in sector 1 and sector 2 locate away from the city center. Firms face freight, labor, and land costs, but no intermediate goods cost. To simplify the algebra, let's assume that firms in each sector use only one unit of land, and thus the land cost LC(x) = P(x) for i = 1,2. The labor costs for each firm as a function of distance to center is given by: L(x1)=20-A1 * x1 L(x2)=30-A2 * x2 The freight costs for each firm as a function of distance is given by F(x)=(Bi+3) * xi a. (2 points) Write out the profit function for a firm in each sector. You should provide two equations. Do not assume that revenue is equal in each sector. b. (3 points) Use your answer from part a to derive the bid-rent curves for manufacturing firms in each sector.