Question
1.Consider the markets for wheat in Kansas City and Chicago. The supply and demand for wheat in Kansas City are given byQs^KC = 300 +
1.Consider the markets for wheat in Kansas City and Chicago. The supply and demand for wheat in Kansas City are given byQs^KC = 300 + 40P^KC, Qd^KC = 500 - 10P^KC, where Qs^KCis quantity supplied in Kansas City, Qd^KC is quantity demanded in Kansas City, and P^KCis the price of wheat in Kansas City. Supply and demand in Chicago are given byQs^c = 350 + 60 P^C, Qd^C = 2150 - 90P^C, where Qs^C is quantity supplied in Chicago, Qd^C is quantity demanded in Chicago, and P^C is the price of wheat in Chicago.
i)Suppose initially it is impossible to ship units from one city to the other. Derive the equilibrium price and quantity in each city.
ii)Now suppose there is no cost to ship units from one city to the other. Derive the equilibrium price and quantity purchased in each city. Also, indicate how many units are shipped from one city to the other and the direction of the shipment.
iii)Same question as in ii), except now suppose that the transportation cost of shipping from one city to the other is 3 per unit.
iv)Same question as in ii), except now suppose the transportation cost of shipping from one city to the other is 10 per unit. Explain your reasoning.
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