Consider the von Thunen Model discussed in class. Alternative uses of one acre of land around a city is summarized as follows (copied from the slides): Remember that land-use pattern around the city is determined by these conditions: land close to the city will become dairy farms; land further away from the city will be wheat farms; and land even further away will be potato fields.

(a) First draw the bid-rent curves for the three sectors. Mark the intersection points.

(b) Using the graph with bid-rent curves, discuss how each of the following change affects land use patterns around the city:

i. People just learned that eating wheat is healthy. As a result, the price of wheat (produced on one acre of land) in the city increases from $800 to $900.

ii. A new model of truck just became available which reduces the transportation cost for potato from $10 to $5 per mile.

Revenue Milk $1000 $200 Wheat $800 $200 Potato $600 $200 Nonland cost of production Cost of transportation $80/mile $30/mile $10/mile