Question

The City of Pleasantville has only 3 citizens: Mr. Miyagi, Mr. T, and Mrs. Butterworth. The City Council is thinking of creating a new park in Pleasantville for the citizens to enjoy. They recently sent a survey to each of the local residents asking them how much they would be willing to pay for each acre of this proposed park. The results of the survey are shown below as marginal values (so Mr. Miyagi would be willing to pay $18 for a 100 acre park and then $16 for the next 100 acres so $34 for 200 acres altogether).

Number	Mr. Miyagi’s Marginal	Mr. T’s Marginal	Mrs. Butterworth’s Marginal
of Acres	Willingness to Pay	Willingness to Pay	Willingness to Pay
100	$18	$11	$14
200	$16	$9	$11
300	$14	$8	$10
400	$12	$7	$9
500	$10	$7	$8

1. The City Council does not think that the WTP estimates above incorporate time sufficiently (afterall once the park is created, it will last forever if maintained properly). The council determines that for a 500 acre park, the citizens will benefit by about $164/year starting in year 1 (as per the results of the survey) while costs will be high in year 0 at $500 but in subsequent years will only amount to a nominal maintenance cost of $5/year. At an interest rate of 5%, how long must this park be around before the net benefits are positive? Please show all calculations for full credit.

2. After talking with economists, the council realized that they have not fully incorporated opportunity cost into their decision making. If the park were not put on this 500 acres, they could lease the acreage to a timber company for a fee earning the town of Pleasantville $120/year into perpetuity. Which project should they choose if they are maximizing the net present value of net benefits for both projects into perpetuity? What is the difference in the value gotten from forestry compared to the park? Show all work for full credit

Answer 1

The city of Pleasantville has only 3 citizens MR. Miyagi Mr.is marginal and mes. Butterworth. They recently Sent a suney to each of the local residents asking them how much they would be willing to pay for each a of this proposed park. Anwer- It is an efficient policy since total collection of funds sum upto $150. if we ask for $50 dollars citizens. If we add Total willingnes of nr. miyagi my = $18+ $ 16+ $14+$12 +$10 = $70 = $1 + $9+ $8 + $7+$7 = $42 Mrs. Butterworths = $4+$11+$10+89+$8 $52 If we fix a cost of $ so dollar on all three citizens. It is a parsto optimality since the condition of miyagi and Mrs. Butterworth is made better. Since they pay just $50 which is less than their willignes to pay. is less than MYN pay just $50 which need to