ch 2a homework
Exercises and Discussion Questions
1. Comment on the following from the owner of a successful plywood mill. “Firms don’t use location theory to make location decisions. I chose this location for my plywood mill due to its proximity to my favorite fishing spot.” Firms do use location theory to make location decisions. The location that a firm chooses depends on where the transportation cost will be the lowest. A firm that is resource-oriented will locate closest to the raw materials site because the cost to transport the input is much higher than the cost of transporting the output. A market-oriented firm will locate closest to its customers and the market. The cost of shipping its output is much higher than shipping its input.
2. Depict graphically the effects of the following changes of the bat firm’s cost curves.
(shown in Figure 2A-1, Page 39). Explain any changes in the optimum location.
a. The cost of shipping bats increases from $2 per ton to $4 per ton, while the cost of shipping wood remains at $1 per ton.
After doubling the price of shipping bats, the new optimum location for the firm is 0 miles from the market. This is because the new cost of shipping bats 10 miles is $120, while the cost of shipping wood 10 miles is $100.
b. The forest at point F burns down, forcing the firm to use wood from point G which is 10 miles west of point F (20 miles from the market)
Given the initial conditions of the problem, if you double the distance of the forest from the market, the cost of shipping wood 20 miles doubles to $200, and the cost of shipping bats doubles to $120. The optimum location for the firm would be 0 miles from the forest, which is now 20 miles from the market.
c. The firm starts producing bats with wood and cork, using three tons of wood and two tons of cork to produce three tons of bats. (Cork is ubiquitous (available at all locations for the same price).
Since cork is ubiquitous, it is not included in the monetary weight of inputs.
1. Comment on the following from the owner of a successful plywood mill. “Firms don’t use location theory to make location decisions. I chose this location for my plywood mill due to its proximity to my favorite fishing spot.” Firms do use location theory to make location decisions. The location that a firm chooses depends on where the transportation cost will be the lowest. A firm that is resource-oriented will locate closest to the raw materials site because the cost to transport the input is much higher than the cost of transporting the output. A market-oriented firm will locate closest to its customers and the market. The cost of shipping its output is much higher than shipping its input.
2. Depict graphically the effects of the following changes of the bat firm’s cost curves.
(shown in Figure 2A-1, Page 39). Explain any changes in the optimum location.
a. The cost of shipping bats increases from $2 per ton to $4 per ton, while the cost of shipping wood remains at $1 per ton.
After doubling the price of shipping bats, the new optimum location for the firm is 0 miles from the market. This is because the new cost of shipping bats 10 miles is $120, while the cost of shipping wood 10 miles is $100.
b. The forest at point F burns down, forcing the firm to use wood from point G which is 10 miles west of point F (20 miles from the market)
Given the initial conditions of the problem, if you double the distance of the forest from the market, the cost of shipping wood 20 miles doubles to $200, and the cost of shipping bats doubles to $120. The optimum location for the firm would be 0 miles from the forest, which is now 20 miles from the market.
c. The firm starts producing bats with wood and cork, using three tons of wood and two tons of cork to produce three tons of bats. (Cork is ubiquitous (available at all locations for the same price).
Since cork is ubiquitous, it is not included in the monetary weight of inputs.