Before an earthquake hits, the University of Ruritania (UR) had rooms enough for 5000 students, which is rented at $300 per month per student. At that price, 500 students who wanted rooms on campus had to be turned away.
a. The earthquake damages 1000 rooms, and it will take one month to make repairs. Graph what the earthquake does to short-run supply and demand for on-campus rooms.
b. After the repairs are made (taking the total rooms back to 5000), UR decides to construct additional housing for 1050 students (which will raise the total to 6050). It plans to lower the price for rooms so that all rooms are occupied. About how much will rent be if the elasticity of demand is -4? How about -2? How about -.2? In which case would the new housing increase university rental revenues the most?
c. How is your calculation in b) affected if rent is set in Ruritanian clochemarks ($1=2.75cm) instead?

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Answer Given Number of students who can accompany 500 students Rent of the room per month for each s... View the full answer