The Sons of Knute had a hunting lodge up on Loon Lake that burned down last winter. They plan to rebuild it this summer and are trying to decide how large the new lodge should be. The organization has 50 members. The marginal rate of substitution of each of them between square feet of hunting lodge and money for other goods is 1.2 - 0.0004y, where y is the size of the hunting lodge in square feet. What is the efficient size for the new hunting lodge?

Question

Quizplus · Accepted Answer

The efficient size is found where the sum of the marginal rates of substitution equals the marginal cost. With 50 members, the sum of MRS is 50(1.2 - 0.0004y). Setting this equal to zero and solving for y gives y = 2,000 square feet.

The Sons of Knute Had a Hunting Lodge Up on Loon