Within the framework of the bid-rent model, as rents increase with proximity to the central business district (CBD), the tendency is for development to:
A) spread to the outskirts of the city
B) build upward on lots within the CBD to allow multiple tenants
C) cease completely
D) focus on low-income housing projects.

Question

Quizplus · Accepted Answer

As rents increase with proximity to the CBD, it becomes more cost-effective for developers to build upward on lots within the CBD to allow multiple tenants (i.e. multi-story buildings with offices or apartments). This is because the cost per square foot of land within the CBD is higher than in the outskirts of the city. Therefore, developers can maximize their profits by building upward to accommodate more tenants within a smaller area of land.

Within the Framework of the Bid-Rent Model, as Rents Increase