P4 - EC314-Fall 2010 Problem Set 4 Matt Turner When you...

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EC314-Fall 2010 Problem Set 4 Matt Turner When you write up your answers, your goal should be to (1) be correct, and (2) convince your reader that your answer is correct. Answers which do not achieve these goals will not be awarded full credit. To accomplish the second objective, it is helpful if your work is legible and if all steps are presented, possibly with a line of explanation. Please STAPLE pages together so that we do not lose them. (This problem set updated: 18 August 2010) . Problems 1. In class and in the text we talked about a monocentric city in a plane. In this problem we look at the easier case of a monocentric city on a line. Assume that: (1) The city consists of farmers who bring their pigs to market at x = 0, where there is a port. (2) The price of pigs at the port is p and that the cost of transporting a pig a unit distance is c , so that the revenue net of transportation for a pig produced at x is p - c | x | . (3) Pigs are produced only from land and each unit of land produces a pigs. The rent for land is r ( x ) per unit. In all this means that the profits per unit of land for a farmer at x are given by π ( x ) = ( p - c | x | ) a - r ( x ) . (a) Explain (briefly) why, in equilibrium, every unit of land in the city must yield the same profit. (b) Suppose that all farmers in the city make exactly zero profits. i. State a farmer’s profits before he pays land rent as a function of position. Plot these profits as a function of position. ii. Solve for
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This note was uploaded on 11/04/2010 for the course ECO 314 taught by Professor Matthewturner during the Spring '08 term at University of Toronto.

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P4 - EC314-Fall 2010 Problem Set 4 Matt Turner When you...

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