Question

Fortville must decide how much open space land to acquire, but acquiring and managing land is costly. Of the 15 residents in Fortville, 10 have preferences for open space given by the demand function(1): P= 100- 0.5Q. The remaining 5 residents have preferences given by the demand function(2): P= 75- 0.25Q. Where P represents marginal benefit and Q acres of open space.

a. Graphically illustrate the market demand for open space, which is a public good. (marginal benefits of open space cannot be negative)

b. If the marginal cost to the town of acquiring and managing an acre of open space is $700, how acres of open space should the town acquire if its objective is to maximize net social benefits? What are total benefits and total costs associated with this decision?

Answer 1

a) P, = 'oo-o.so P-ме . 33s 363 าร์) 20 100 as