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Question:
Rosenberg Land Development (RLD) is a developer of condominium properties in the
Southwest United States. RLD has recently acquired a 40.625 acre site outside of Phoenix,
Arizona. Zoning restrictions allow at most 8 units per acre. Three types of condominiums are
planned: one, two, and three bedroom units. The average construction costs for each type of
unit are $450,000, $600,000, and $750,000. These units will generate a net profit of 10%. The
company has equity and loans totaling $180 million dollars for this project. From prior
development projects, senior managers have determined that there must be a minimum of
15% one-bedroom units, 25% two-bedroom units, and 25% three-bedroom units.
a. Determine how many of each type of unit the developer should build.
b. Explain increasing the budget for the project. Increase or decrease
ANS-
Context header: Average Cost
Context explanation: Average is the sum total cost to produce output divided by the number
of output or quantity produced. Average cost calculates the average cost incurred by firm on
each unit of quantity produced. Average includes both fixed and variable cost.
Answer and explanation:
RLD acquired 40.625 acre land for making apartment of one, two, and three bedrooms of 8
units per acre.
Average cost of construction for one bedroom is $450000
Average cost of construction for two bedrooms is $600000
Average cost of construction for three bedrooms is $750000
Net profit = 10%
RLD taking loans of $180 million for making apartment on one, two and three bedrooms
Differentiate the loans amount as
15% to one bedroom
25% to two bedrooms
25% to three bedrooms
A.
Since RLD is a construction company and wants to determine the value of each units of
apartment having one, two and three bedrooms.
RLD has a restriction to 8 units per acre. Total land acquired by the RLD is 40.625 acre.
Therefore, RLD can construct
number of units = 8×40.625
= 325
Total 325 units of bedrooms can be constructing.
The average construction is given for each type of units and every unit will give 10% profit.
Company also had taken a loan amounting $160 million. Therefore, total construction cost of
apartment is $1800000.
On the basis of total cost we can calculate the number of units for each bedroom. So total 325
units
For one bedroom there are 76 units of bedroom can build?
For one bedroom there are 87 units of bedroom can build?
For one bedroom there are 162 units of bedroom can build?

B.
Increase in budget means the increase in total cost of construction. Therefore it leads to
reduce the number of units to be constructed. So increase in budget lead to decrease the
number of units.