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The Bid-Rent Function

The Bid-Rent Function. Outline. Leftover Principle Von Thunen’s Model Comparative Statics. Ricardo. Fixed prices Zero economic profit Fertility of land varies Land to highest bidder Zero Transport Costs. Leftover Principle. Von Thunen. Fixed prices Central market place

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The Bid-Rent Function

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  1. The Bid-Rent Function

  2. Outline • Leftover Principle • Von Thunen’s Model • Comparative Statics

  3. Ricardo • Fixed prices • Zero economic profit • Fertility of land varies • Land to highest bidder • Zero Transport Costs

  4. Leftover Principle

  5. Von Thunen • Fixed prices • Central market place • Competitive markets • Production costs same at all location • All farmers use 1 acre of land

  6. Land Rent and Accessibility

  7. Flexible Farmer • For each distance, firm chooses acreage and non-land inputs to minimize costs of producing Q. • As rents increase, firm will use less land and more land inputs. • Bid rent function will be steeper close to city. • Flexible firm will have lower costs than inflexible firm • Decrease in transport costs will make bid-rent less steep if output prices unchanged. If output prices affected, bid-rent will be lower.

  8. Bid Rent for Flexible Farmer

  9. Increase in Transport Costs

  10. Increase In Price of Output

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