Question 1 Given the price and cost functions as a function of floor-to-area ratio (FAR), F are: P=1003FC=30+5F Where in the price function, 100 represent non-FAR determinants of price, 3 represent the magnitude of marginal effects of FAR on price. In the cost function, 30 represent the baseline cost and 5 represent the magnitude of marginal effects of FAR on cost. a. First, notice that the sign for the marginal effects of FAR on price is negative while the sign for the marginal effects of FAR on cost is positive. Intuitively explain why this is so (Hint: Recall what FAR itself measures). (10 points) b. Solve for the equilibrium FAR. Denote this as Fe0. (10 points) c. Suppose now there was an increase in non-FAR determinant of price to 150 . The new price function will then be P=1503F. Solve for the new equilibrium FAR. Denote this as Fe1. (10 points) d. Now suppose the city plans to impose a FAR limit of 10. i. Draw the price and cost functions on a graph and denote Fe1 on this graph. Also denote the FAR limit on the same graph. (Note: only draw the new price function, no need to draw the original price function.) (10 points) ii. Compute the deadweight loss from this policy. (10 points)