Optimal development of a building site

Abstract

This paper points out that the simple convex cost curve of classical economics is relevant to the issue of optimal building size, but only if the questions of time and cost of capital are ignored. It then aims to replace the static production cost model with a multiperiod model and to find a new optimum rule similar to “marginal cost equals price” appropriate to the construction process. A further purpose of the paper is to propose a simple land valuation model, reflecting the land use potential of a site taking into account the price of floor space, the cost and pace of construction, and the cost of capital.