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Consider manufacturing in China. Supposedly, they can sell as much as they want at the market price. Suppose also that all industrial businesses have constant
Consider manufacturing in China. Supposedly, they can sell as much as they want at the market price. Suppose also that all industrial businesses have constant returns to scale in production: if a factory wants to double the size of its operations, it merely doubles the size of its factory and hires twice as many workers (at a wage which does not change) and uses twice as many machines (at a price which does not change). Show that the market price of an industrial property would be a linear function of the size of the property. (Ignore the effect of transportation costs on the business's willingness to pay. Hint: start with a "standard" property size (e.g., 1 ha) and consider the effects of changing it.)
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