Question
The following information is to be used for Questions 12,13, and 14 As Toronto gets more and more congested, some have chosen to build houses
The following information is to be used for Questions 12,13, and 14
As Toronto gets more and more congested, some have chosen to build houses further north. Residents of some old Ontario communities are dismayed to see land formerly used for hiking and camping being sold for building lots.
The residents' association in Masseyville propose raising money from all homeowners to buy hiking/skiing land from the heirs of orginal settlers; land that would otherwise be sold to housing developers. Fifty (50) local homeowners will participate. The best estimate of each (identical) homeowner's willingness-to-pay (marginal benefit) function is
PH = 50 - (0.5)L
where L is number of units of land purchased for preservation,
H = 1, 2, 3,...,50 represents Homeowner 1, Homeowner 2, etc.
Landowners have been offered large payments if housing developers can acquire large amounts of land, but much smaller payments if only small parcels of land are sold to developers. Thus, the marginal cost to the community of buying land to preserve as wilderness rises with amount purchased. The total cost of buying L unit of land can be approximated as
TC(L) = 1,600L + 25L2
12. What is the Pareto-efficient amount of land preserved in Masseyville?
A. Fewer than 5 units
B. At least 5 units but fewer than 10 units
C. At least 10 units but fewer than 15 units
D. At least 15 units but fewer than 20 units
E. At least 20 units
13. What is gross benefit to a typical resident from preserving the optimal amount of land?
A. Less than $500
B. At least $500 but less than $1,000
C. At least $1,000 but less than $1,500
D. At least $1,500 but less than $2,000.
E. At least $2,000
14. What is the net benefit to all 50 residents from preserving the optimal amount of land?
A. Less than $5,000
B. At least $5,000 but less than $7,500
C. At least $7,500 but less than $10,000.
D. At least $10,000 but less than $12,500
E. At least $12,500
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