1. Consider a local park. The value of a trip to this park to any individual dep

Question

1. Consider a local park. The value of a trip to this park to any individual depends on how many other people also visit the park. For the first six visitors, the value of a trip is S30. But for each additional visitor after the sixth, the value to all visitors falls by $2 a. How many people will come to the park if it is open to the public at no charge? Is this efficient? b. If the park is private property and the owner may charge a fee to use the park, what fee will he charge and how many people will use the park? Is this efficient?

Explanation / Answer

a) Value for 6 persons to visit park = $ 30

Decrease in value per person added = $ 2

So, maximum number of additional persons that can be added so that value does not become negative – 30/2 = 15 persons

Total number of persons will be 6 + 15 = 21

Therefore , Maximum number of persons who will visit park if there is no charge will be 21

So, This will be efficient till the total number of visitors remain below or equal to 21

b) The total value for each person will change for every additional person’s visit to the park, for example initially 6 persons visit the park, so owner can charge a Maximum of –

$ 30/6 = $ 5 per person, but if additional person comes to the park, then value remains $ 28.

So , per person value will come down to 28/7 = $ 4 per person.

So if we keep adding persons the lowest value of visit will be $ 2 for 20 persons

Therefore, Considering the visit of 20 persons , Owner should charge 2/20 = $ 0.10 per person

After that this will become inefficient

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