Problem Set 6

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New York University *

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Economics

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Jan 9, 2024

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Uploaded by skylardavis02

Urban Economics, Fall 2023, Problem Set #6 Due Friday, Dec 8, 11pm, online on Brightspace no late problem sets, one single file submission only Word, Excel, or PDF formats only Question 1: The Shape of Bid Rent Curves For the following cases say whether the resulting Bid Rent Curves are linear, convex, concave, or undetermined. No explanation needed. a) A firm enjoys decreasing marginal travel cost and engages in factor substitution. b) A firm has constant marginal travel cost and does not engage in factor substitution. c) A firm incurs increasing marginal travel cost and does not engage in factor substitution and needs to have regular lunch meetings with its peers of the same industry. d) A firm engages in factor substitution and faces increasing marginal travel cost. Question 2: Bid Rent Functions Office firms, office workers, and agricultural firms compete for land. Their respective bid rent functions are given by: office firms R o =222-5x, office workers R w =192-2x, and agricultural firms R a =120. where R denotes the bid rent and x the distance from the city center. a) Where does each bidder locate? (calculate the respective distances from the city center) b) Now assume that the city imposes a fuel tax on offices and on office workers resulting in an increase in their corresponding marginal transportation cost by 1. How does this change your answer to (a)? Who locates where? c) Now assume that, in addition to (b), some revenue from the fuel tax is paid to office workers (to office workers only, not to offices). The government sends out checks resulting in an income growth of $3 for each worker. How does this change the bid rent functions and the respective locations? d) Now assume that, in addition to all effects mentioned under (b) and (c ), climate change reduces farm profits and lowers the bid rents of agricultural firms by $3 (to $117). How does this change the respective locations. Who located where?

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