Use the following information to answer the subsequent questions. A simple monocentric city Roundville) has a population of 3,000,000 with a homogeneous density of 5 inhabitants per acre, and one person per household. Agricultural rents are $500/acre/yr, housing construction costs including developer profit) can be paid for with a perpetual loan charging interest of $5000/house/yr, and transportation costs are $250/person/yr per mile of distance from the center of the city. Recall that there are 640 acres per Mi 2 .)
-What is the annual location premium rent per household in the center of Roundville?

Question

Quizplus · Accepted Answer

The annual location premium rent per household in the center of Roundville is $4,320. This is because the agricultural rent is $500/acre/yr, and the housing construction costs can be paid for with a perpetual loan charging interest of $5000/house/yr. The transportation costs are $250/person/yr per mile of distance from the center of the city. So, the total annual cost of living in the center of Roundville is $500 + $5000 + $250 = $5750. The annual location premium rent is the difference between the total annual cost of living in the center of Roundville and the total annual cost of living in the suburbs. The total annual cost of living in the suburbs is $500 + $250 = $750. So, the annual location premium rent is $5750 - $750 = $4,320.

Use the Following Information to Answer the Subsequent Questions