Question

suppose the cost to build the park is $14 per acres (mc=14). how large should the park be to maximize total social surplus from the park in tritown?

Answer 1

The optimal park size that maximizes total social surplus is 14 acres.

Step-by-step explanation:

To determine the optimal size of the park to maximize total social surplus, we need to find the point where marginal social benefit (MSB) equals marginal cost (MC).

Assuming that the park provides a positive externality to the residents of Tritown, we can represent the demand for park acreage as the marginal social benefit (MSB) curve. Let's say that the demand for park acreage in Tritown is given by the following equation:

MSB = 80 - 2P

where P is the price per acre of parkland.

The marginal cost (MC) of building the park is given as $14 per acre, which is a constant.

To find the optimal park size, we need to set MSB equal to MC and solve for P:

80 - 2P = 14

2P = 66

P = 33

Now that we have the optimal price, we can plug it back into the MSB equation to find the optimal park size:

MSB = 80 - 2P

MSB = 80 - 2(33)

MSB = 14

Therefore, the optimal park size that maximizes total social surplus is 14 acres.