Jellystone National Park is located 10 minutes away from city A and 20 minutes away from city B. Cities A and B have 200,000 inhabitants each, and residents in both cities have the same income and preferences for national parks. Assume that the cost for an individual to go to a national park is represented by the cost of the time it takes her to get into the park. Also assume that the cost of time for individuals in cities A and B is $.50 per minute.
You observe that each inhabitant of city A goes to Jellystone ten times a year while each inhabitant of city B goes only five times a year. Assume the following: the only people who go to the park are the residents of cities A and B; the cost of running Jellystone is $1,500,000 a year; and the social discount rate is 10%. Also assume that the park lasts forever.
a. Compute the cost per visit to Jellystone for an inhabitant of each city.
b. Assuming that those two observations (cost per visit and number of visits per inhabitant of city A, and cost per visit and number of visits per inhabitant of city B) correspond to two points of the same linear individual demand curve for visits to Jellystone, derive that demand curve. What is the consumer surplus for inhabitants of each city? What is the total consumer surplus?
c. There is a timber developer who wants to buy Jellystone to run his business. He is offering $100 million for the park. Should the park be sold?

  • CreatedApril 25, 2015
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