Question
In the same village, the residents are trying to decide whether or not build a one, two, or three acre public park. Their individual, subjective
In the same village, the residents are trying to decide whether or not build a one, two, or three acre public park. Their individual, subjective valuations for these amenities are as follows:
1 acre park 2 acre park 3 acre park
Steve $10.00 $17.00 $21.00
Bibhu $16.00 $28.00 $36.00
Cyrus $17.00 $30.00 $39.00
Bart $22.00 $35.00 $42.00
a) Plot (in one graph) the private marginal benefit (MB) for each acre, for each resident. Connect the dots for each individual, and label the lines with the residents name.
b) Plot (in another graph) the social marginal benefit (SMB) of each acre of park. Connect the dots, and label the line.
c) Suppose the marginal cost of providing each acre of park is $30.00. Draw a third graph in which you include the SMB curve from (b) and the marginal cost curve.
d) What sized park is socially optimal? (integer values only). Explain. e) What is the equilibrium park size, if each resident acts solely in self-interest?
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