What will be the cost to the government of the plan

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Reference no: EM13238503

A city is concerned about rising rent for low-income households. Several policies being considered. Suppose there are a large number of construction companies, each with the identical cost function for building low-cost houses
TC = 2500 + 400q +q2
where q is the number of low-cost houses a firm builds.

a. In the absence of any government intervention, what will be the long run price of low-cost houses and the quantity built by each construction company?

b. (Inverse) demand for low-cost housing is given by P = 1000 - Q. How many lowcost houses will be built in total? How many firms will serve the market?

c. Suppose the government gives a $900 cash payment to each firm that builds low-cost houses. What will be the long run price of low-cost houses and the quantity built by each firm? How many low-cost houses will be built in total (assume demand remains the same)? How many firms will serve the market? What will be the cost to the government of this plan?

Reference no: EM13238503

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