Question

In the same community, we have elicited each individual's willingness to pay to build preserve an acre of natural park space. Whatever amount is preserved, the community will split the cost evenly. Suppose it costs $44 to preserve an acre of natural park space. Park (acres) Avery WTP Billy WTP (S) Cedric WTP Doug WTP Total WTP 10 3. (1 point) How many acres should be preserved to maximize total surplus from the park? 4. (1 point) What is the largest park size for which the majority of residents would vote yes? 5. (1 point) To maximize his own surplus, how many acres would Cedric like to preserve? 6. (1 point) If the residents decide to preserve a park whose size is equal to the number of acres that maximizes total surplus from the park, how much total surplus will Avery receive?

Answer 1

3) 3 acres should be preserved since the willingness to pay for the three acres is more than the cost to preserve it.

So 3 acres would be the answer.

4) The largest park that the majority of the residents would vote yes would be 3 acres where 75% of the residents vote yes.

5) To maximise his own surplus Cedric would want to preserve 2 acres of land. This is because at 3 acres, Cedric would need to shed more money than he is willing to pay as 10<45/4 =11.25, which would mean his surplus would be negative.

So he would preserve 2 acres.

6) If the residents decide to preserve 3 acres of land, then there would be 45/4=11.25$ as the cost to each resident.

This would mean that Avery would have surplus as

20-11.25=$8.75