Suppose that Dryville, a town of 50,000 persons, does not currently have a public swimming pool, but, encouraged by an offer from the state government to pay 50% of the construction costs, is considering building one. Further suppose that you have been selected by Dryville's mayor to analyze the benefits and costs from building such a pool.

a. Although Dryville has no experience with a public pool, assume that you have collected data from several towns that are very similar to Dryville and that do have a public swimming pool. For each town, you know what fee it charged last summer per visit and how many visits it had. The data collected for each town appear below:

TOWN FEE NO. OF VISITS

A $1.00 175,000

B $2.00 125,000

C $0.50 200,000

Using a diagram, indicate how you might utilize these data to predict the net benefits received by users of the pool if Dryville was to charge a fee of $0.50 to swim in the pool. [NOTE: You need not compute this amount; just indicate clearly the area on the graph that represents the net benefit amount.]

b. By how much would the benefits received by swimmers change if Dryville was to increase the fee from $0.50 to $1.00. [NOTE: This time compute the actual dollar value.]

c. Suppose that t the marginal costs of operating the pool after it is built is constant at $0.50 (i.e., the marginal cost curve is horizontal), but Dryville increases the fee from $0.50 to $1.00. What are the net social gains or losses resulting from this increase.

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