Consider A Monocentric City Export Firms Have Two Options

Consider A Monocentric City Export Firms Have Two Options For Transpo

Consider a monocentric city with export firms that have two transportation options for moving their output to the city center: a transporter or a truck. The transporter provides an instant, costless move for any amount of output at a fixed rental cost of $12 per period, while the truck transports output at a variable cost of $2 per unit per kilometer. All firms are identical, producing 10 units of output valued at $50 per unit at the city center, occupying one unit of land each, with a total non-land cost of $240, and operate in a perfectly competitive market with zero opportunity cost of land. Assume the city may not have a boundary. Derive the equilibrium land rent function and the equilibrium land use function based on these parameters.

Paper For Above instruction

To analyze the equilibrium rent and land use functions within a monocentric city model considering transportation choices, it is essential to ground the analysis in fundamental urban economics principles. The model assumes firms produce output intended for a central market, and their transportation costs influence their location decisions and rent prices along the city’s radius. The existence of two transportation modes—the transporter and the truck—adds complexity to the spatial equilibrium, impacting the rent gradient and land utilization.

Understanding the Transportation Options and Cost Structures

The transporter costs a fixed fee of $12, offering an instantaneous, costless transfer of any output quantity to the city center. Its fixed nature makes it economically advantageous for large quantities or for firms prioritizing speed over distance. In contrast, the truck's cost is proportional to both distance and quantity—$2 per unit per kilometer—making it more expensive the farther the firm is located from the city center and the larger the output.

Firms produce 10 units of output valued at $50 each at the city center, with each occupying 1 unit of land, and incur non-land costs of $240. All firms are identical; thus, the key variable influencing location decisions is the transportation cost, which affects the land rent they are willing to pay at different distances from the city center.

Deriving the Equilibrium Rent Function

The land rent at any distance r from the city center is driven by the transportation costs of firms located at r. A firm chooses the most cost-effective transportation option: either the transporter or the truck. To determine the rent at a given distance, consider the firm's cost minimization problem.

Transporter cost: Fixed at $12, regardless of distance. This mode is preferable for firms with high transportation costs via truck—that is, farther away or serving higher output quantities—if the fixed cost is less than the variable truck cost. Since the transporter is instant and costless aside from rent, its relative advantage multiplies as distance or output increases.

The truck's total transportation cost for a firm located at radius r is:

C_truck = $2 × output × r = 2 × 10 × r = $20 r.

The transporter cost is fixed at $12, serving as a threshold. Firms located at r where the truck cost exceeds the transporter cost would prefer the transporter.

If we assume all firms optimize their transportation mode choice based on minimizing costs, then:

• For distances where $20 r ≤ $12$, the firm prefers the truck, which is not feasible because $20 r ≤ 12$ implies r ≤ 0.6 km, an unreasonably small distance in real settings.
• More realistically, the firm will choose the transporter where $20 r ≥ $12$, i.e., for r ≥ 0.6 km.

Thus, the location's rent at distance r is constrained by transportation costs, as firms will only locate where they can recover costs and earn profits. The maximum rent they are willing to pay equals their revenue minus their total costs, which include land costs and transportation costs.

The firm's profit at location r is:

Profit(r) = revenue - total costs = (price × output) - (non-land costs + transportation costs + rent)

Revenue per firm: 10 units × $50 = $500.

Total costs (excluding rent): $240 (non-land costs) + transportation cost.

Since the market is perfectly competitive, firms will just cover their costs, which implies:

Rent(r) = Revenue - Non-land costs - Transportation costs

Therefore, the rent function is:

$$ r(r) = 500 - 240 - c_{transportation}(r) = 260 - c_{transportation}(r) $$

Where c_{transportation}(r) is the lesser of the two transportation costs—either the fixed transporter cost ($12) or the variable truck cost ($20 r). Since the transporter cost is fixed, it dominates for large r where truck costs are higher. For distances r where truck costs are less than $12, firms prefer the truck; otherwise, they prefer the transporter.

Summarizing, the equilibrium rent function becomes:

• For r ≤ 0.6 km, where truck costs are less than or equal to $12, rent is:
• $$ r(r) = 260 - 20 r $$
• For r > 0.6 km, where transporter costs are more than $12, rent is:
• $$ r(r) = 260 - 12 = 248 $$

Deriving the Equilibrium Land Use Function

The land use function describes how land is allocated across distances from the city center based on transportation costs and land rents. Firms will occupy land units where their profits are non-negative, i.e., where rent is less than or equal to the maximum rent that allows for cost recovery.

Given the rent function derived, land use extends until the rent equals the firm's willingness to pay, which is constrained by transportation costs and revenue. The maximum distance, r_max, where firms are indifferent, occurs at the point where their transportation costs equal their maximum rent threshold, approximately at r = 0.6 km, beyond which firms are not willing to locate due to prohibitive costs.

Thus, land use is concentrated within this radius, decreasing as costs rise. The land use function, L(r), is therefore:

• For r ≤ 0.6 km, land is utilized, with density decreasing with increasing radius according to the rent function, particularly following the decrement in rent, i.e., L(r) proportional to 1/r, or as specified by the demand and transport cost structure.
• Beyond r > 0.6 km, land use declines rapidly as transportation costs make location unprofitable.

In essence, the land use function results from the balance between transport costs, rent prices, and firm profitability, producing a monocentric pattern with the highest land rents and density at the center, tapering off with increasing distance.

Conclusion

This analysis demonstrates that in a monocentric city with dual transportation modes—instant transporter and variable-cost truck—the equilibrium rent function is segmented based on distance, dictated by transportation cost competitiveness. Land use is similarly confined within a radius where transportation costs do not outweigh revenue, consistent with classic urban economic theories. The explicit rent function features a decline with distance up to the point where the fixed transporter cost is surpassed by the truck's variable costs, beyond which rent remains constant at the level dictated by the transporter cost, thus shaping the spatial distribution of land use and rent in the city.

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