## Midterm SP2020 MC60 (1).docx

• December 1, 2020

Urban Economics Exam #1 (SP 2020), April 21, 2020, version 60

Instructions:  Please read all questions carefully. The value of each question is indicated in parenthesis. The total maximum is 47 points. No notes, no books, no phones, no calculators, no bathroom breaks, no sharing!

Your answers need to be in the separate bubble sheet PDF, which you need to save on your computer and then submit via NYU Classes. As a safety net, also highlight your answer on the Word file and submit it too. You will be able to submit two files (in case the answers differ, the bubble sheet answer will be given priority).

60 Von-Thünen Model

Refer to von-Thünen’s model where a city’s market reaches to the left and to the right. Assume customers’ WTP is \$1212 per unit of the good in question. The firm is competitive and its price equals marginal cost c=12; the market reach is x=12 to the left and x=12 to the right.

(1) What is the firm’s marginal transportation cost? (2 pts)

(2) What is the rent at a distance x=14 from the city center? (2 pts)

60 True or False?
(3) In von-Thünen’s model, when c=0 and all other variables are unknown, the optimal distance from the market is always x*=0  (2 pts)

(4) In von-Thünen’s model, when c=t=WTP, the optimal distance from the market is always x*=∞  (2 pts)

60 Von-Thünen Model with multiple cities (8 pts)
There are two cities, A and B; B is located 80 miles east of A. Both produce an identical good with prices given as pA=12 and pB=6; marginal transportation costs are tA=1 and  tB=2 and WTP equals 60.

(5) What is the market reach of A to the right?  (1ps)

(6) What is the market reach of B to the left? (1 pt)

(7)  How many miles between A and B are unserved? (1 pt)

(8) A wants to serve the entire unserved area by lowering its price. What is its maximum price? (2 pts)

60 Location Decisions of Transfer-Oriented Firms Correct or false? Don’t explain
(9) When to>ti the transfer-oriented firm must locate at the market. (1 pt)

(10) The term “weight gaining activity” refers to production rather than to consumption. Therefore, making wine is weight gaining, while brewing beer is a weight losing activity. (1pt)

(11) When wto=0 and wti>0, the optimal location must always be at the resource. (1 pt)

(12) When the firm experiences diseconomies to distance in both its procurement and its distribution cost, the total transportation cost curve will be concave.

60 Location Decisions of Transfer-Oriented Firms (6 pts)
Assume there are 5 locations, A, B, C, D, and E along a line east of A. The Table provides the distance from A and the population per location. Suppose each person would like to consume one unit of a good. Each unit needs to be shipped separately; shipping cost is \$1 per mile.

(13) The shipping cost of a company located at B to location E equals (1 pt)

(14) The overall shipping cost of a company located at E equals (2 pts)

(15) What location is transport cist minimizing (1 pt)

60 Market Concentration
An industry has plants in 4 counties. The table below shows the employment share in each county.
In order to evaluate the regional employment concentration calculate the CR3 (1pt) and the HHI (3pt)

(16) What is the CR3? (1 pt)

(17) What is the HHI? ( 2 pts)

60 Gini Coefficient
Suppose there are 4 cities with their respective employment shares in parentheses: A(60%), B(10%), C(10%), D(20%).The population (=width) of all cities is identical.
(18) The resulting the Gini coefficient is (3 pts)

60 Location
A company needs 4 inputs from three different location I1, I2, I3, and I4 (see chart). It sells its product at Market M.

(19) With the provided monetary weights, where is the Nash Equilibrium? (2 pts)

(20) If the output can be shipped at no cost, where is the Nash Equilibrium now? (2 pts)

60 Measuring Regional Industry Concentration (3 pts)
Suppose there are 4 counties. Employment is given by the following table:

(21) Employment Location Quotient (ELQ) of Cars in county D equals

60 Localization Economies: Sharing a Labor Pool in Boom and Bust (6 pts)
Assume the wage in a cluster location is equal to w=\$80. Labor demand curves are given by wBOOM=160-L and wBUST=40-4L, where L denotes the number of jobs.
(22) What is the number of employed workers during the boom period?  (1 pts)

(23) What is the number of employed workers during the bust period?  (2 pts)

(24) What is the expected CS if the likelihood of Boom is 80%? (2 pts)

60 Short Questions and True-False Questions (6 pts)
(25)
What U.S. county has the lowest income GINI coefficient?

(26) Name an industry that benefits from urbanization economies

(27) The Boom-Recession Labor Model suggests that non-clusters are worse off than clusters because of higher wages

(28) A high ratio “mean income over median income” indicates high income equality

(29) In the long-run, 2 cities with different utility curves can have different utilities

(30) In the long-run, when a city’s U-curve shifts down due to a crisis and its utility falls, other cities will benefit

(31) When the CR4=1, the HHI must always equal one as well.

60 Localization Economies: Skill Matching (3 pts)
(32)
Drawing on the skill circle model, assume companies pay a wage of \$15 to interns. However, training cost is borne by the firm and equals \$480 per unit. If a company’s total labor cost per worker and hour were \$35, how many companies are there?

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