Table 11-1
Consider the town of Anywhere with only three residents, Mary, Bill, and Tricia. The three residents are trying to determine how large, in acres, they should build the public park. The table below shows each resident's willingness to pay for each acre of the park.

-Refer to Table 11-1.Suppose the cost to build the park is $33 per acre.How many acres should the park be to maximize total surplus from the park in Anywhere?
A) 2 acres
B) 3 acres
C) 4 acres
D) 5 acres

Question

Table 11-1
Consider the town of Anywhere with only three residents, Mary, Bill, and Tricia. The three residents are trying to determine how large, in acres, they should build the public park. The table below shows each resident's willingness to pay for each acre of the park.
 
-Refer to Table 11-1.Suppose the cost to build the park is $33 per acre.How many acres should the park be to maximize total surplus from the park in Anywhere?
A) 2 acres 
B) 3 acres 
C) 4 acres 
D) 5 acres

Quizplus · Accepted Answer

To maximize total surplus, the park should be built up to the point where the marginal willingness to pay equals the cost (in this case, $33 per acre). Based on the table, Mary's marginal willingness to pay for the first acre is $50, Bill's is $60, and Tricia's is $30. Thus, it makes sense to build the first acre of the park. The marginal willingness to pay for the second acre is $40 for Mary, $50 for Bill, and $20 for Tricia. Therefore, it makes sense to build the second acre as well. The marginal willingness to pay for the third acre is $30 for Mary, $40 for Bill, and $10 for Tricia. Building a fourth acre of the park would cost $33 but no one's marginal willingness to pay exceeds $33, so it would result in a net loss. Therefore, the optimal size of the park is 2 acres, which would yield a total surplus of $147 ((50-33) + (60-33) + (40-33) + (30-33) + (20-33))

Table 11-1 Consider the Town of Anywhere with Only Three Residents, Mary