In the new city of Toweria, all buildings are 5 floors tall. The Great Toweria Fire burns down all these old buildings, and new buildings have to be constructed. Because of advances in construction technology, these new buildings can be of any height. The firm owning land at site X finds that its cost-minimizing decision is to build a 5-floor building once again. This decision is made based on the following information:

- Each firm in Toweria requires 1 unit of floor space in order to operate

- The price of land at site X is $5000 per unit of land area. 1

- The firm ends up spending $3000 in total on its new office building (divided between building spending and land)

(a) Draw an isocost and isoquant diagram with the following information:

- The axes of the diagram are building spending (B) and land area (L)

- The isoquant (IQ) for 1 unit of office space

- The isocost line (IC) for the firm at site X. Label both intercepts of this line

- The point describing the cost-minimizing decision of the firm (point C)

At site Y, the the price of land is lower: $4000 per unit of land area.

(b) Suppose that the firm at site Y builds a 5 floor building. If it did so, how much would the firm spend in total on its new office? This should include building spending as well as spending on land area.

(c) On the same diagram as before, draw the isocost line for the level of spending you found in the previous part. Label this line IC2.

(d) To minimize costs, should the firm at site Y build a taller/shorter/same height building as the firm at site X? Explain briefly.