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Question: the transportation costs on each isodapane are defined as in...

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The transportation costs on each isodapane are defined as in the location triangle and represent transportation costs per unit of production of moving away from point P1. The firm currently believes that the minimum cost of production is at location P1 given its relationship with external markets M1, M3 and C. At location P1, assume the labor cost is $10 per unit of production and at point P2 the labor cost is $8 per unit of production.

S5 Critical $4 isodapane $3 $2 ム

Should the firm move from location P1 to location P2 ? Why or why not?

If the local community at location P2 decided to offer the firm a credit of $1.50 per unit of production as a transportation subsidy then would the firm move from location P1 to location P2 assuming nothing else changes? Why or why not?

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