Consider the town of Springfield with only three residents, Sophia, Amber, and Cedric. The three residents are trying to determine how large, in acres, they should build the public park. The following table shows each resident's willingness to pay for each acre of the park.AcresWillingness to Pay(Dollars)SophiaAmberCedric11024628185361444383516260417020 Refer to Table 11-1. Suppose the cost to build the park is $24 per acre. How many acres should the park be to maximize total surplus from the park in Springfield?

Solution: Willingness to pay refers to the maximum price that a customer will be willing to pay for an item or service. There will be profit maximization by setting the marginal revenue (MR) for each consumer group equal with the marginal cost of service or production (MC).Acres Sophia Amber Cedric Total 1 $10 $24 $6 $40 2 $8 $18 $5 $31 3 $6 $14 $4 $24 4 $3 $8 $3 $14 5 $1 $6 $2 $9 6 $0 $4 $1 $5 7 $0 $2 $0 $2 The above computations shows that at 3 acres the benefit will be equal to the cost; and therefore the park should be 3 acres. If park exceeds 3 acres it results to a loss because cost exceeds the benefit; while when lesser than 3 acres are used it indicates that benefit exceeds cost and therefore it will continue to extend. Final answer: 3 acres

Answered: Consider the town of Springfield with…

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Consider the town of Springfield with only three residents, Sophia, Amber, and Cedric. The three residents are trying to determine how large, in acres, they should build the public park. The following table shows each resident's willingness to pay for each acre of the park.

Acres	Willingness to Pay (Dollars)
Sophia	Amber	Cedric
1	10	24	6
2	8	18	5
3	6	14	4
4	3	8	3
5	1	6	2
6	0	4	1
7	0	2	0

Refer to Table 11-1. Suppose the cost to build the park is $24 per acre. How many acres should the park be to maximize total surplus from the park in Springfield?

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