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?