An incentive to incur additional capital costs

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Reference no: EM131978138

Graph the office bid-rent curve for consulting firms located in and around a central business district. Each firm bills $575 worth of services a day, and has non-land costs of $125 a day. Each building is only 2 stories high, so capital costs are only $100. Traveling to the central business district costs firms $50 per block, and offices are uniformly built on ½ hectare of land.

a) Graph the office bid rent curve.

b) If the local government relaxes restrictions on building taller office building, and firms are able to build 4 story offices at an additional $100 in total capital costs, who will have the greatest incentive to do so? Who will not have an incentive to incur the additional capital costs?

Reference no: EM131978138

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