Four families share a common stretch of beach and they are considering a program of improvement, including a stairway and a play structure for children. The demand curve (i.e., the marginal willingnessto-pay curve) of each family for the improvement is: Family 1: MWP Q Q 1 ( ) = 20 Family 2: MWP Q Q 2 ( ) = 20 Family 3: MWP Q Q 3 ( ) = 28 Family 4: MWP Q Q 4 ( ) = 16 2 where q is the units of improvement. The marginal cost of the improvement is constant and is equal to 4. There is no fixed cost.

a) Derive the aggregate marginal-willingness-to-pay curve.

b) Suppose that four families agree to share the cost of the improvement equally. What would be the maximum beach improvement they could realize?

c) What is the efficient level of beach improvement? Propose a cost-sharing arrangement among the four families that ensures the efficient outcome to be implemented.