Question

Locations of Transfer-Oriented Firms Assume the distance between the resource (R ) and the market (M) is 10 miles. A firm’s procurement cost is given by PC=x2, where x is the distance from the resource measured in miles. The firm’s distribution cost is given by DC=100-0.5x2. Again, x is the distance from the resource. (a) What is the Total Freight Cost at each milestone (i.e., x=1, 2, 3, …). Where should the firm locate? (b) How does your answer to all parts under (a) change if the marginal procurement cost were equal to zero?

Answer 1

Move Oriented Firms are where transport cost is the prevailing component for area choice. Transport cost contains Procurement Cost (PC) and Distribution Cost (DC).

(a) Total cargo cost will be the whole of PC in addition to DC.

Complete Freight Cost =
`x^2 + (100 - 0.5x^2)`

Complete Freight Cost =
`100 + 0.5x^2`

In the event that we take a gander at the expense limiting alternative in the above table for the firm then it ought to situate at zero separation where the expense is least at 100. Absolute cost will increment as the estimation of x increments.

(b) If peripheral obtainment cost is zero for all the separation alternatives (1 to 10) at that point it shows that PC stays zero independent of the separation between Resource (R) and Market (M). The all out cost will be:

TC = PC + DC

TC =
`0 + 100 - 0.5x^2`

TC =
`100 - 0.5 x^2`

The table will be as underneath:

The firm would situate at separation of 10 miles where the absolute expense is least at 50.