Table 11-1
Three wealthy families - the Johnsons,the Lincolns,and the Washingtons -are the only residents of a certain neighborhood in which the lawns are large and the streets are wide.The three families are considering the placement of one,two,or three elegant statues at entrances to the neighborhood.The table represents the individual families' willingness to pay,that is,the maximum amount that each family is willing to contribute to purchase and erect each statue.

-Refer to Table 11-1.Suppose the cost of each statue is $24,000.How many statues should be erected to maximize the total surplus of the three families?

Question

Table 11-1
Three wealthy families - the Johnsons,the Lincolns,and the Washingtons -are the only residents of a certain neighborhood in which the lawns are large and the streets are wide.The three families are considering the placement of one,two,or three elegant statues at entrances to the neighborhood.The table represents the individual families' willingness to pay,that is,the maximum amount that each family is willing to contribute to purchase and erect each statue.
 
-Refer to Table 11-1.Suppose the cost of each statue is $24,000.How many statues should be erected to maximize the total surplus of the three families?

Quizplus · Accepted Answer

To maximize the total surplus, we need to calculate the total willingness to pay of the three families for one, two, and three statues respectively.

For one statue, the total willingness to pay is $72,000 (30,000 + 28,000 + 14,000). Since the cost of each statue is $24,000, the total surplus would be $48,000 ($72,000 - $24,000).

For two statues, the total willingness to pay is $116,000 (60,000 + 40,000 + 16,000), which exceeds the cost of two statues ($48,000). The total surplus would be $68,000 ($116,000 - $48,000).

For three statues, the total willingness to pay is $128,000 (90,000 + 30,000 + 8,000), which exceeds the cost of three statues ($72,000). However, the total surplus would only be $56,000 ($128,000 - $72,000), which is lower than the total surplus for two statues.

Therefore, the best choice is to erect two statues to maximize the total surplus of the three families.

Table 11-1 Three Wealthy Families - the Johnsons,the Lincolns,and the Washingtons -Are