The small city of Pleasantville is considering building a public swimming pool that costs $1,000. Each resident's marginal benefit of the swimming pool is shown below. It takes a 4/5 majority to pass any tax measure, and all residents must vote. $$\begin{array} { | c | c | }
\hline \text { Voter } & \text { Marginal Benefit } \
\hline \text { Kyle } & \$ 420 \
\hline \text { Dylan } & \$ 360 \
\hline \text { Fran } & \$ 350 \
\hline \text { Ronnie } & \$ 190 \
\hline \text { Sam } & \$ 170 \
\hline
\end{array}$$ Kyle proposes that the city auction the right to build the pool to the highest-bidding company. The winning company would be able to charge residents a one-time fee to use the pool as much as they like, and only residents who pay the fee would be allowed to use the pool. If the private company could perfectly price discriminate, then:

Question

The small city of Pleasantville is considering building a public swimming pool that costs $1,000. Each resident's marginal benefit of the swimming pool is shown below. It takes a 4/5 majority to pass any tax measure, and all residents must vote. $$\begin{array} { | c | c | } 
\hline \text { Voter } & \text { Marginal Benefit } \
\hline \text { Kyle } & \$ 420 \
\hline \text { Dylan } & \$ 360 \
\hline \text { Fran } & \$ 350 \
\hline \text { Ronnie } & \$ 190 \
\hline \text { Sam } & \$ 170 \
\hline
\end{array}$$ Kyle proposes that the city auction the right to build the pool to the highest-bidding company. The winning company would be able to charge residents a one-time fee to use the pool as much as they like, and only residents who pay the fee would be allowed to use the pool. If the private company could perfectly price discriminate, then:

Quizplus · Accepted Answer

A private company would be willing to bid up to the total marginal benefit of the residents who would be willing to pay to use the pool. In this case, Kyle, Dylan, and Fran would be willing to pay to use the pool, so the private company would be willing to bid up to $420 + $360 + $350 = $1,130 to build the pool. However, since the private company can perfectly price discriminate, it would only charge each resident their marginal benefit, so the total revenue the company would receive would be $420 + $360 + $350 = $1,130. Therefore, the private company would be willing to bid up to $1,130 to build the pool.

The Small City of Pleasantville Is Considering Building a Public