Below are the travel demands for an average resident living near a state park when faced with
Question:
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?