It would not cost a significant amount to divide Jerusalem. Israel already spends a lot on defense and security, and the government could easily allocate some of the funds for borders in the city. If the city can be divided peacefully, it would obviously be good for the ecomonies of both halves.
Dividing Jerusalem between Israel and Palestine creates two classes of people. Israel is much wealthier than Palestine and the city will be divided among the richer Israelis and poorer Palestinians. That split is not good for the region's economy at all. Crime would be rampant and security tight everyone. Jerusalem may as well be a DMZ if it is divided, much like Berlin during the Cold War.