Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below. Suppose the town can purchase land for the park at a cost of $20 per acre. The optimal park size would be ______ acres.

Question

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below.    Suppose the town can purchase land for the park at a cost of $20 per acre. The optimal park size would be ______ acres.

Quizplus · Accepted Answer

The optimal park size is where the sum of marginal willingness to pay (MWTP) of all residents equals the cost of purchasing the park, which is $20 per acre in this case. 
At 2 acres, the total MWTP is $35. At 4 acres, the total MWTP is $45, which equals the cost of purchasing the land. At 6 acres, the total MWTP is $40, and at 8 acres, the total MWTP is $30. Therefore, the optimal park size is 4 acres.

Consider a Town with Three Residents