Regional and Urban Economics Parts 1 & 2

Model 1 (Steady-state)

Suppose the typical weekday is divided into a few distinct periods h = 1, …, H, each with constant flow V_h for a duration q_h. With short-run variable cost given by equation (3.31), the resulting daily cost function is:

where V is the vector of flows V_h, q is the vector of durations q_h, and ρ is the capital recovery factor⁵² divided by the number of weekdays per year. The first-order condition for minimizing (3.57), with K(V_K) given by (3.56), gives the following investment rule:

The marginal capital cost of expanding the ...