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Segregation vs

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Segregation vs. Integration Consider a city of 200 people (100 rich and 100 poor) and two neighborhoods (100 people in each). Both groups generally prefer to live with rich people and are willing to pay a premium for living with a fraction of rich people that is larger than 50%. Poor people's premium curve is given as Ppoor = 2x2, where x is the percentage of rich above 50% (e.g., if there are 52% rich, x will be 2). Rich people's premium curve is given by Prich = 60x -0.4x2 a) What is the equilibrium outcome (i.e., what is the share of rich and poor people, respectively). Explain. b) Calculate the premium to be paid at the equilibrium.