Question

Continuing the saga of wilderness area to be preserved by the residents of the village of Taugswater... Immediate following their return to Taugswater, the Herbert family is informed of the wilderness preservation proposal. As George, the grandfather and patriarch, is a walker of the bush, the other village residents assumed that the Herberts would want to participate (and contribute). Recall that the cost of preserving "H" hectares of wilderness is TC(H) = 100H + H2 If the Herbert family is upright and honest, and if its willingness-to-pay for wilderness preservation is identical to that of each of the other four families: P(H)[≡MB(H)] = 500 - 2H , what will be the net benefits for each family from preserving the optimal (surplus-maximizing) amount of wilderness?

options:

1) Net benefit to each family no more than $20,000

2) Net benefit to each family more than $20,000 but not more than $30,000

3) Net benefit to each family more than $30,000 but not more than $45,000

4) Net benefit to each family more than $60,000

5) Net benefit to each family more than $45,000 but not more than $60,000

Answer 1

Marginal cost=dTC/dH=100+2H

Marginal benefit=500-2H

Profit is maximised when MC=MB

100+2H=500-2H

H=100

Total benefit=500H-H²=500(100)-100²=50000-10000=40000

total cost= 100(100)+10000=20000

Net benefit=40000-20000=20000

Net benefit to each family should be 20000

Ans is A