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Suppose that a certain amount of land is to be allocated among four uses: (urban) development, industry, agriculture, and recreational use. Their bid rent functions
Suppose that a certain amount of land is to be allocated among four uses: (urban) development, industry, agriculture, and recreational use. Their bid rent functions reflect the marginal benefit MB of each use as a function of distance D to city center: Development: MB1=2005D, Agriculture: MB2=1603D, Recreation: MB3=50D/2. Suppose that the marginal cost of preparing the land for any use equals 5 . For example, if an additional unit of land (measured by distance) is to be used by industry, then the necessary developments on that last unit of land costs 5 . (a) [10 marks ] Using the bid rent functions given above, calculate the amount of land (measured in distance) allocated for each use. (b) [10 marks ] If the agriculture receives a subsidy equal to 10 per unit of land, recalculate the amount of land (measured in distance) allocated for each use. (c) [10 marks ] If the marginal cost of preparing the land goes up (e.g., higher taxes), which sector(s) would be affected as a result? Explain your intuition for your answer. Suppose that a certain amount of land is to be allocated among four uses: (urban) development, industry, agriculture, and recreational use. Their bid rent functions reflect the marginal benefit MB of each use as a function of distance D to city center: Development: MB1=2005D, Agriculture: MB2=1603D, Recreation: MB3=50D/2. Suppose that the marginal cost of preparing the land for any use equals 5 . For example, if an additional unit of land (measured by distance) is to be used by industry, then the necessary developments on that last unit of land costs 5 . (a) [10 marks ] Using the bid rent functions given above, calculate the amount of land (measured in distance) allocated for each use. (b) [10 marks ] If the agriculture receives a subsidy equal to 10 per unit of land, recalculate the amount of land (measured in distance) allocated for each use. (c) [10 marks ] If the marginal cost of preparing the land goes up (e.g., higher taxes), which sector(s) would be affected as a result? Explain your intuition for your
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