Ps9_ProblemSet - Price Analysis AEM 4150 Fall 2008 Homework...

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AEM 4150 Fall 2008 Homework Assignment #9 Due Date: Tuesday November 25, 2008 1. Least cost method Answer the following two questions given the above diagram. (a) Illustrate on the diagram the least cost method of shipping when distance increases (from zero to positive infinity). (b) Will air transportation ever be used when distance increases? Briefly explain why yes or why no. 2. Market boundary. Information is given in the slide #7, chapter 8. That is, price in market A is $6, price in market B is $5, tc rate = 0.50 per 100 miles. Suppose now price in B decreased to $4 and tc rate to B increased to $.60 per 100 miles. Everything else remains the same. (a) Solve for the new market boundary and the net price a producer will get if he is located at the boundary. (b) Graphically illustrate the movement of the market boundary. (c) On the graph you draw in (b), highlight the effective net price received by the producers at various locations. Do this only for the case of the new market boundary. transfer cost (per unit of
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Ps9_ProblemSet - Price Analysis AEM 4150 Fall 2008 Homework...

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