Consider Chinese clothing

manufacturing industry that expo

rts

all of it

s output by ship.

Each fi

rm has

total revenue per month of $

30,000

and a monthly non

-

land production cost of

$4

,000

.

Each fi

rm initially transports its output from its factory to the port

on trucks. A fi

rm's

freight cost is $

2000

/month

per

mile

from the port. Suppose

a second transport option is

developed: For a mo

nthly fixed cost of $

8000

, a fi

rm

can use a

train

to transport its output from

its factory to the port, up

to a distance of

8

miles

only

.

a.

Draw two bid

-

rent curve

s for manufacturers, one for fi

rms that

only

use the truck

and a

second for fi

rms that

only

uses the train

,

locating port to the origin of your

graph

.

Indicate

where the firms will locate in such environment.

b.

Draw the optimal "merged" bid rent curve for a firm that has access to both transportation

options.

Which firms will choose to use what strategy?