Below are the travel demands for an average resident living near a state park when faced with different park entry fees. Notice that the cost of a visit to the park is only the entry fee.

Travel Demand in # Visits to the park per year	0	1	2	3	4	5	6	7	8	9	10
Marginal entry fee that the user is Willing-To-Pay per visit ($/visit) (No other travel cost is assumed)	200	180	160	140	120	100	80	60	40	20	0

a) The park authority is trying to set an entry fee such that the total entry fee collection (or fee income) is maximized. What should be the income-maximizing entry fee in $ per visit? At that entry fee what will be the resident’s consumer surplus?

b) Suppose that the Park Authority makes some improvements in the park by adding new recreational amenities. A new survey of the visiting residents show that at each number of visits shown above, the visitor’s willingness to pay an entry fee goes up by $20 per visit, i.e., instead of paying $80 per visit at 6 visits/year, an average visitor would be willing to pay $100 per visit. Assume that the park authority doesn’t change its income-maximizing entry fee that you computed in (a), what will be the incremental consumer surplus that each visitor will gain due to the park improvement?

Answer rating: 100% (QA)

a What should be the incomemaximizing ... View the full answer