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 size occurs where the marginal cost of an additional acre equals the marginal benefit of an additional acre. The public's willingness to pay for the 4ᵗʰ acre is $4 + $9 + $7 = $20. Thus, both the marginal benefit and the marginal cost of the 4ᵗʰ acre are $20.

Consider a Town with Three Residents