Should a manufacturer locate near the natural recourse extraction site (R) or a city where demand for the manufactured good is (C)? Recalling our class discussion from the first night of class, suppose the distance between R and C is 50 miles. The marginal cost of shipping the manufactured good to C is $10 per mile. The marginal cost of shipping the raw material to C is $5 per mile. Holding the raw material in inventory at C costs $200 in total.

a. Where should the manufacturer locate to economize on shipping costs?

1. Suppose you dont know inventory costs (just call them x for now). For what value of x would the manufacturer be indifferent between locating at R or C?