Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below. If the park is currently 2 acres, and land costs $20 per acre, the town should:

Question

Consider a town with three residents. The residents' demand curves for various acres of a public park are shown below.  If the park is currently 2 acres, and land costs $20 per acre, the town should:

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, which is exactly equal to the marginal cost of an acre of parkland. Thus, the town should buy two additional acres.

Consider a Town with Three Residents