Table 11-5
A small strip mall contains four retail stores, and crime has recently been on the increase in the neighborhood of the strip mall. The owners of the four stores - Stores A, B, C, and D - are considering contributing to a pool of money that will be used to hire up to 4 security guards. The table represents their willingness to pay, that is, the maximum amount that each store owner is willing to contribute, per day, to hire each security guard.

-Refer to Table 11-5.Suppose the cost to hire each individual guard is $100 per day.Then total surplus for the 4 store owners is

Question

Table 11-5
A small strip mall contains four retail stores, and crime has recently been on the increase in the neighborhood of the strip mall. The owners of the four stores - Stores A, B, C, and D - are considering contributing to a pool of money that will be used to hire up to 4 security guards. The table represents their willingness to pay, that is, the maximum amount that each store owner is willing to contribute, per day, to hire each security guard.
 
-Refer to Table 11-5.Suppose the cost to hire each individual guard is $100 per day.Then total surplus for the 4 store owners is

Quizplus · Accepted Answer

To determine the best choice for hiring security guards, we need to add up the willingness to pay of all stores for each number of guards hired and compare it to the total cost of hiring those guards.
- If 1 guard is hired, the total cost is $100 and the total willingness to pay is $145 ($40 + $30 + $40 + $35). Thus, the total surplus is $45.
- If 2 guards are hired, the total cost is $200 and the total willingness to pay is $205 ($40 + $50 + $50 + $65). Thus, the total surplus is $60.
- If 3 guards are hired, the total cost is $300 and the total willingness to pay is $245 ($40 + $30 + $80 + $95). Thus, the total surplus is $45.
Therefore, all three statements are correct, and the best choice is to hire 2 guards since it generates the highest total surplus of $60.

Table 11-5 A Small Strip Mall Contains Four Retail Stores, and Crime