Suppose a firm in industry B is competing for sites with the industry A firm. The industry B firm would have profits before land rent of $750,000 at site 1 and $650,000 at site 2. Determine the land allocation and the equilibrium land rent we would observe at each site.
The land allocation and equilibrium land rent will depend on the relative profitability of the two industries at the two sites. In this case, industry A has a higher profit at site 1 than industry B, so industry A will bid more for site 1. Industry B has a higher profit at site 2 than industry A, so industry B will bid more for site 2. The equilibrium land rent at each site will be determined by the highest bid.