Recall the locational indifference condition in the model of housing prices with commuting costs: ∆p·h(x)+∆x·t=0

a) if h(x) = 750, have we modeled consumers as being able to substitute? how do you know?

b) derive the slope of the bid-rent curve when h(x) = 750

c) now suppose h(x) = 650+(x^2) for x≥0. graph this equation and provide an interpretation for h(0) = 650 (hint: think about what x represents).

d) rederive the slope of the bid-rent curve using h(x)=650+(x^2)

e) find the distance x at which the two bid rent curves from part b and d have equal slope. (hint: set h(·) from part b equal to part d and solve).