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Each year, 1 thousand people benefit from the Potomac River's recreation in Western Maryland. It is estimated that each beneficiary has the same demand function
Each year, 1 thousand people benefit from the Potomac River's recreation in Western Maryland. It is estimated that each beneficiary has the same demand function for the river recreation as: P=120-2Q where Q is measured in miles of the river preservation for recreation, P-price per mile of the river preserved or individual willingness to pay for recreation. Given that the marginal cost of river preservation is estimated at $20,000 per mile per year, find:
- How many miles of the river would be preserved in an efficient allocation? [ Hint: Equate MB (in a) with MC of $20000. ]
- What is the total cost per year associated with the efficient allocation, found in b? [Hint. Total Cost= MC* Q]
- What are the total benefits per year associated with the efficient allocation, found in b? [Hint Total Benefits= Consumer Surplus + Total Cost]
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