Question

Assume there are 10 landlords in a competitive market, each with cost function c(h) = h²/110, where h in this case represents the total amount of housing h that a landlord supplies. a. What is the market equilibrium price? Assume the landlords are price takers, but do not assume zero profits. b. At this price, how much is demanded by a low wealth consumer? How much by a wealthy consumer? c. What is the utility of the low wealth consumer? (Here you must find u(h₁, y)). Recall, we assume that the price of y is national, not local, and so not affected by this market - the price is always 1.) d. What is the utility of the wealthy consumer?

Answer 1

a. The market equilibrium price is $6.
b. A low wealth consumer demands 0.3 units of housing and a wealthy consumer demands 0.9 units of housing.
c. The utility of a low wealth consumer is 1.77.
d. The utility of a wealthy consumer is 5.43.