Problem Set #5
due Tuesday, Apr 28, in class
(1) Is in your textbook, Ch. 6, Applying the Concepts # 3:
Consider a manufacturing firm that occupies two hectares of land. The firm
produces 10 tons of output per day and sells its output at a price of $80 per ton.
The firm does not engage in factor substitution as the price of land changes. Intra-
urban transportation is on trucks, with a unit cost of $12 per ton per mile. The
firm’s nonland cost is $200 per day. The firm exports its output via
circumferential highway (beltway).
(a) Draw the firm’s bid-rent curve for land for different distances from the
beltway, from a distance zero to five miles.
(b) What is the bid-rent at the beltway? What is the slope of the bid-rent function?
Show your work.
(2) Is in your textbook, Ch. 6, Applying the Concepts # 8:
Consider a monocentric city (i.e., a city with only one center, as we always
assumed in class) where the cost of commuting is $40 per mile per month. A
household located 8 miles from the city center occupies a dwelling with 1,000
square feet at a monthly rent of $600. Nonland cost per dwelling is $250, and
there are 10 houses per hectare.
(a) Calculate the price of house per square foot at a distance of eight miles. Show
(b) At a distance of 8 miles, what is the bid-rent for land (in $ per hectare). Show
(c) Assume that the demand for housing is perfectly inelastic. Compute the price
of housing per square foot at a distance of 5 miles. Show your work.
(d) Assume that housing firms do not engage in factor substitution. Compute the
bid-rent for land (in $ per hectare) at a distance of 5 miles.
(e) Suppose consumers engage in consumer substitution and firms engage in
factor substitution. Would the bid-rent for land at a distance of 5 miles be greater
or less than the number computed in (d)? Explain.
(3) Is in your textbook, Ch. 7 Appendix, Applying the Concepts # 1:
Suppose the marginal…