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1. Study Question 4.20 (For question b, discuss two cases: (1) there are only two bidders, and (2) there are many other bidders that have
1. Study Question 4.20 (For question b, discuss two cases: (1) there are only two bidders, and (2) there are many other bidders that have bid prices between the two firms' bid prices.) 4.20. A firm in industry A is making a location decision, and has narrowed the choice to two different locations, which we will call site 1 and site 2. The firm's revenue is independent of location and equals $5 million per year on each site. The firm's nonland production costs, however, differ at the two sites, being $4 million at site 1 and $4.5 million at site 2. a. Assuming the land (rental) market is competitive, what is the firm's bid rent for each site? b. Now suppose a firm in industry B is competing for sites with the industry A firm. The industry B firm would have profits before land rent of $750,000 at site 1 and $650,000 at site 2. How is the land allocated, and what is the equilibrium land rent we would observe at each site? 1. Study Question 4.20 (For question b, discuss two cases: (1) there are only two bidders, and (2) there are many other bidders that have bid prices between the two firms' bid prices.) 4.20. A firm in industry A is making a location decision, and has narrowed the choice to two different locations, which we will call site 1 and site 2. The firm's revenue is independent of location and equals $5 million per year on each site. The firm's nonland production costs, however, differ at the two sites, being $4 million at site 1 and $4.5 million at site 2. a. Assuming the land (rental) market is competitive, what is the firm's bid rent for each site? b. Now suppose a firm in industry B is competing for sites with the industry A firm. The industry B firm would have profits before land rent of $750,000 at site 1 and $650,000 at site 2. How is the land allocated, and what is the equilibrium land rent we would observe at each site
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