1.Given the location triangle and assumptions below, answer the following questions:

Assume:

The transportation costs on each isodapanerepresent transportation costs per unit of production of moving away from point K.The firm currently believes that the minimum cost of production is at location Kgiven its relationship with external markets M1, M2and M3.The firm is currently entertaining recruiting offers to move its location to other areas in the region, specifically along panes Q, R, S, or T to the right of point K.It believes it can save labor costs by relocating to more rural areas.

At their current location K, assume thetotallabor cost is $80 per unit of production.Analysts at the firm have put together the following table of labor cost savings (compared to the current level of $80) and increased transportation costs as defined by the isodapane linesif they were to move.The values below are per unit of production.

Labor Cost

Increased

Area

Savings ($)

Transport Costs ($)

Q

12

10

R

25

25

S

35

40

T

55

50

(a)Given this information, should the firm move from location Kto any other point along the panes Q, R, S or T?Why or why not?What is the optimal location?Please show your work if you want full or partial credit.(15 Points)

(b)Community leaders along pane R are desperatefor an infusion of new industry into their area.Wanting to ensure they were chosen for the new location theydecided to offer the firm acombination of tax abatements and transportation subsidies that the firm believes will change the increased transport costs at pane R to $18 from the initial $25.Would the firm now want to move along pane Rassuming nothing else changes?Why or why not?Please show your work if you want full or partial credit.(10Points)

2.(25Points)

The mayorof alocal community hires you to help her understand the percentage of sales retained in her community as she and her council are looking at offering incentives for development for the local businesses.Given the information below, estimate the percentage of sales retained by the local community.

Formula:

Potential Sales = community population* state sales per capita *local PCI

state PCI

where PCI is per capita income.

% sales retained= (actual sales potentialsales) *100

Assumptions(based on last year's Census data):

Community population = 9,800

State sales per capita = $12,563

local PCI =$15,184

statePCI=$23,722

actual sales in the community = $58,750,090

3.(25Points)A small rural community's planning committeewants to know where themarket boundary is with respect to the nearest large metropolitan area.They wish to know how far out the boundary extends for advertising and planning purposes.They have hired you to advise them on this matter.UseReilly's Law of Retail Gravitationto advise the planning committee on how far out the market boundary extends for theircommunity (Town A) with respect to the nearest large metropolitan area (Town B).Assume the following information:

Population of town A (PA):9,800

Population of town B(PB):100,008

Distance between the towns: 55Miles

4.(25Points)Compare and contrast thethreemain types of economic growth models(stages of growth, neoclassical, and endogenous growth).In your answer, make sure to describe pros and cons of each approach.Finally, which model of economic growth do youbelieve is bestand why?