Table 11-1 Consider the town of Anywhere with only three residents, Mary, Bill,
ID: 1199316 • Letter: T
Question
Table 11-1
Consider the town of Anywhere with only three residents, Mary, Bill, and Tricia. The three residents are trying to determine how large, in acres, they should build the public park. The table below shows each resident’s willingness to pay for each acre of the park.
Acres
Mary
Bill
Tricia
1
$14
$18
$30
2
10
14
26
3
6
10
22
4
4
6
18
5
2
3
14
6
0
1
10
7
0
0
6
Refer to Table 11-1. Suppose the cost to build the park is $33 per acre and that the residents have agreed to split the cost of building the park equally. If the residents decide to build a park with size equal to the number of acres that maximizes total surplus from the park, how much total surplus will Bill receive?
$9
$2
-$2
$10
Acres
Mary
Bill
Tricia
1
$14
$18
$30
2
10
14
26
3
6
10
22
4
4
6
18
5
2
3
14
6
0
1
10
7
0
0
6
Explanation / Answer
First we have to determine the maximum number of acres that maximise total surplus.
Surplus=willingness to pay-actual payment.
In this case actual payment is the cost per acre which $11/acre for each individual. They try to maximise total surplus as long as total willingness to paygreater than or equal total cost. Remembering that it can be determined that maximum they can build 3 acres of park as
total willingness to pay=18+30+54=102 and the total cost=99, but if they want to build more that is 4 acres, then total willingness to pay=16+24+72=112 and total cost=33*4=132 which is not feasible. Therefore they decide to build 3acres of park inorder to maximise total surplus.
Now in case of 3 acres of parke, Bill's willingness to pay=$30
But he have to paytotal =$33.
Therefore total surplus of Bill=30-33=-$3
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