Suppose that a household resides in an urban area at a distance to downtown of 8 miles. The household occupies 3,000 square feet of land, and at this distance land rent is $1.50 per year per square foot. Land rent declines by $0.05 per square foot as distance to downtown increases by one mile. A member of the household must travel downtown to work five days per week (50 weeks per year). The cost of this trip is

$4.00 per day, which includes both money cost and the time cost converted to money.

a. Assume that the marginal and average costs of distance from downtown are equal. What is the marginal cost of distance?

b. Is the household in locational equilibrium? How do you determine the answer to this question? If the household is not in locational equilibrium, which direction should it move to improve its welfare? (Hint: Compare the costs and benefits of moving one mile closer to downtown and of moving one mile away from downtown.)

c. What would the slope of the land-rent function have to be for the household to be in locational equilibrium?