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Below are the travel demands for an average resident living near a state park when faced with different park entry fees. Notice that the cost

Below are the travel demands for an average resident living near a state park when faced with different park entry fees. Notice that the cost of a visit to the park is only the entry fee.

Travel Demand in # Visits to the park per year

0

1

2

3

4

5

6

7

8

9

10

Marginal entry fee that the user is Willing-To-Pay per visit ($/visit)

(No other travel cost is assumed)

200

180

160

140

120

100

80

60

40

20

0

a) The park authority is trying to set an entry fee such that the total entry fee collection (or fee income) is maximized. What should be the income-maximizing entry fee in $ per visit? At that entry fee what will be the resident’s consumer surplus?

b) Suppose that the Park Authority makes some improvements in the park by adding new recreational amenities. A new survey of the visiting residents show that at each number of visits shown above, the visitor’s willingness to pay an entry fee goes up by $20 per visit, i.e., instead of paying $80 per visit at 6 visits/year, an average visitor would be willing to pay $100 per visit. Assume that the park authority doesn’t change its income-maximizing entry fee that you computed in (a), what will be the incremental consumer surplus that each visitor will gain due to the park improvement?

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