Consider a market centrally located in Limon, Colorado. Agricultural producers are scattered throughout the eastern plains, and all have to ship their products by truck to the central market.
a. If a commodity is traded in the central market for $4/bu; and transportation cost is $0.10/mile, what is the value of a commodity (P), as a function of the distance (D) from the central market? Write an equation describing how $4/bu., $0.10/mile, P and D are related.
b. Draw a two-dimensional graph portraying three iso-price lines implied by the equation in part (a) for the three distances D = 5, 10, and 25 miles. The graph does NOT need to be on scale, but be sure to label each price.