In recent years, the manufacturing and heavy industries in the European Union (EU) have been steadily moving out of cities into the country side, whereas the banking, finance, and advertising industries have moved their headquarters to city centers, often to high rise buildings. One reason behind this trend seems to be that manufacturing firms find it difficult to substitute capital for land in the busiest cities, whereas firms in the service sector do not.

a. What types of buildings represent a substitution of capital for land?

b. Why is it difficult for firms in the manufacturing sector to economize on space as opposed to those in the service sector?

c. Why is it relatively easier for a firm in the service sector to substitute capital for land?

d. Why is the demand for land likely to be higher in city centers?