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. Intraurban 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).

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Urban Economics

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

your work.

(b) At a distance of 8 miles, what is the bid-rent for land (in $ per hectare). Show

your work.

(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…

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ps5.pdf