Question

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 $14 10 6 4 2 0 0 Bill $18 14 10 Tricia $30 26 2 3 18 14 10 1 0 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. To maximize his own surplus, how many acres would Bill like Anywhere to build? O 0 acres O 1 acre O 2 acres O 3 acres

Answer 1

Answer

The correct answer is (c) 3 acres

Consumer surplus is the benefit a consumer receives by paying a price less than what they are willing to pay. According to above question bill have to pay 33/3 = $11 per acre. We can see from the above table than Bill's willingness to pay is greater than 11 acre for first 2 acres (Note : Bill's willingness to pay for 3rd acre is 10 which is less than 11)

Hence In order to maximize his surplus Bill will prefer to have 2 acres. Hence In order to maximize his surplus Bill will like 2 acres.

Hence the correct answer is (c) 2 acres