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Urban Economics SP24
Problem Set
1) No late problem sets
2) You can only upload one single file. No multiple file submissions.
3) For this Problem Set, we only accept EXCEL formats (use a different worksheet
for each question).
4) Show your work for all questions!
Question (1): Location Choice of Transfer-Oriented Firms
Suppose a transport cost-oriented firm consumes four inputs (I1 to I4) in order to produce
one output, which is consumed at the output market M. Points H1 and H2 are
transportation hubs.
a) Assume M’s monetary weight equals $4. The monetary weight for I1 and I2 is $2 each;
the monetary weight for I3 and I4 and is $3 each. Where, if any, is the Nash Equilibrium?
(5 pts)
b) Now assume the stretch between H2 and I4 (both points included) were a Nash
Equilibrium Assume the same monetary values as under (a) – only the monetary value of
I4 can change. What is the value of I4 to attain the required equilibrium? (5 pts)
Answers
(a) The Nash equilibrium is at H1 (5 pts)
Note, the answer “between H1 and H2” is wrong, which is easy to see.
If one moves from H1 to the right one will move away from $8 (M+I1+I2) and closer
to only $6 (I3+I4). That is, leaving H1 to the right will cause cost to grow by $2.
Don’t move!
M
I3
H2
I4
I1
I2
H1
Moving from H2 to the left towards H1 will result in a net gain of $2 (one leaves $6
and moves closer to $8). Move!
(b) I4 = $11 (5 pts). It must the equal to the sum of all others.
Question (2): GINI Coefficients of Job Concentration
Scroll down until you see Full Portfolio View of Related Clusters.
Select EDUCATION and scroll to the map on top. (You must go to the map – don’t
download any data if you don’t see the map)
On the left sidebar you now have various choices; select Economic Areas. Calculate for
1998 and for 2016 the CR4, HHI and Gini Coefficients for employment and for the
annual payroll (which is the product of Employment x Annual Wage). For the Gini
Coefficient, assume that all regions are of identical size. Make sure you match each
area’s employment with its wage. Overall, you have to calculate 12 coefficients (see table
below).