Question

Suppose the price of 1 unit of barbecue produced at home is 1 unit of peanuts. Further suppose that the price of 1 unit of barbecue in the Barbecueville, the barbecue factory city, is 0.30 unit of peanuts. Assume that transportation costs per round-trip mile is 0.1 units of peanuts per mile. What is the diameter of the market area of Barbecueville? Remember, the diameter is all the way across the circle, not just half the circle. The graph below is for reference, but not required to calculate the answer. Cost of homemade barbecue 1 unit of Peanuts cost of arbecue in Peanuts at ther factory door O miles Travel Distance to the factory in miles Market area of the factory anuead u ansaqueq jo au

Answer 1

Consider the given problem here the price of “1 unit of barbecue” is “1 unit of peanuts” at home. Now, the same is “0.3 units of peanuts” in the Barbecueville the factory city. Now, if “d” be the diameter of the market then on the diameter the cost of producing barbecue should be same at “home” and at “factory”. So, the following relation should be hold.

=> 0.3 + 0.1*d = 1, where “0.1*d” be the delivery cost.

=> 0.1*d = 0.7, => d = 7 miles, => the diameter of the market is “d =7 miles”.