B.* Suppose that people gain utility from housing services h and other consumption x, with tastes described by the utility function u1x, h2 5 ln x 1 ln h. Consumption is denominated in dollars (with price therefore normalized to 1). Housing services, on the other hand, are derived from the production process h 5 k 0.5L a

, where k stands for units of capital and L for acres of land. Suppose 0 , a , 1.

Let the rental rate of capital be denoted by r, and assume each person has income of 1,000.