Router – Using IP addresses from IP pool given by ISP

1.Would it be better to setup traffic policing?

You're using shaping, which is better in this case. The important thing is to buffer your traffic before sending it to your internet provider. Consider this:

• Your ISP asks you to set your physical interface to 100Mbps
• Your service from the ISP is 30Mbps
• What happens if you're already sending 30Mbps of traffic, and you need to send a ping?

By default, your Cisco 2901 router's interface will buffer based on the physical transmit rate (100Mbps) you are configuring. If you do not add traffic shaping, that ping has a decent chance of being dropped because the ISP is almost certainly policing ingress to 30Mbps on the other end. Traffic shaping allows you to buffer your instantaneous traffic in excess of 30Mbps, so it has a chance of making it past your ISP's ingress policing; otherwise your router won't even think about buffering traffic until it reaches the physical interface transmit rate (100Mbps).

Setup traffic shaping: class-map match-any SHAPE match any
policy-map SHAPE
class SHAPE
shape average 30000000
interface GigabitEthernet0/1
service-policy output SHAPE
...
Would it be better to setup traffic shaping/policing on outside interface (gig 0/0)?

You should definitely set up egress shaping on Gi0/0; consider qos, and / or wred as well.

Since Gi0/1 is a LAN-facing interface, egress shaping doesn't help much unless you need to prioritize certain traffic, or use wred on the queue (which wouldn't be a bad idea, if you set it up right).

When you configure your QoS policies, I recommend you do it in this order:

• Test ping loss from Gi0/0 to 50.204.xxx.81 for at least 20 minutes without qos on either interface; if you don't have a clean baseline, then you'll spend a lot of time chasing the wrong packet loss in the next steps.
• Test egress shaping rates on your Gi0/0 interface at about 200-300 byte IP packets (i.e. somewhere at or below imix sizes), and adjust the rates until you don't drop traffic to them (see below). You might need to ask them to temporarily colo some of your test equipment in their network. Failing that, you can rent a server on the internet to test with; however, that gets fairly complicated since there would likely be several additional congestion points.
• Test egress shaping rates on your Gi0/1 interface, in the same way you did above.
• Add wred (if you plan to do so). Test again with 3 parallel TCP streams in each traffic direction.

Test strategy:

I strongly recommend that you perform a UDP non-drop transmit rate test with whatever qos settings you choose because it's possible that your shaping rate could be slightly higher than your ISP's rate. If so, then you need to lower your shaping parameters until you don't drop traffic when you send it to them.

3. I am confused with ISP giving me 50.204.xxx.80/30 address for interconnect block and then saying that I can use 50.204.xxx.83 thru 50.204.xxx.86?

That definitely is confusing, as far as I can tell, that sentence can be safely ignored; however, please double check with them to be sure. The reason I say this:

• They said "ISP Internet gateway: 50.204.xxx.81"
• They said "Customer Layer 3 device WAN interface: 50.204.xxx.82"
• They said "The /29 of usable IP space is statically routed by ISP to 50.204.xxx.82"

Regarding your question in the comments

The routes shown in this diagram are adequate. You only need a default route to the provider, unless you plan to turn up other networks besides 50.204.xxx.88/29.

Side notes

• I normally don't recommend hard-coding speed and duplex on ethernet interfaces, but this practice is entrenched in many ISP procedures, so there is no point in fighting it.
• You should adequately protect your network with a firewall as well, as Kit suggested.

All thanks to the comment by Avery Abbott, I was able to solve the problem by making sure that all [cascading] switches have the corresponding vlans created so that the trunks can carry data for that vlan across the switch.

thanks all.