Assume:

a)Researchers estimated a hedonic regression for Boston Back Bay Condominiums.

Given:

a)The estimated rent function is R = 222-1.48F. Here R shows the price or the value of

1 acre of 1-story brownstones (in million dollars).

b)The cost function for these building is given as C=100+2F. F is in acre and 1 acre

=43560 square feet.

c)Values of , , and .

= 222

= 1.48

= 100

= 2

d)Optimal FAR or F*= ( - )/ = (222-2 ) / 1.48) =220/1.48 = 148.6486

F* = R = 222-1.48F = 222-1.48*148.6486 =220

C = 100+2F = 100+2*148.6486 = 397.2973

Profit = P*F -C = 148.6486*220-397.2973 = 32305.4054

Question:

Show F* on the profit (p) diagram?

(Show Diagram)