Refer to the von-Thünen model where a city’s market reaches to the left and to the...
Refer to the von-Thünen model where a city’s market reaches to the left and to the right. The firm is competitive and its price equals marginal cost. The firm’s marginal cost is c=1; the market reach is x=14 to the left and x=14 to the right. Marginal transportation cost is 6.
(a) What is customers’ WTP per unit of the good in question?
(b) What is the rent for a person located at x=10?
Homework Answers
a)
WTP = c+tX
C= marginal cost, t = marginal transportation cost , x=14
WTP = 1+6*14 = 85
B)
Here X= 10, t =6,c=1
Rent = WTP-(c+tX)
Rent = 85-61 =24
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