Question

The city council divides a community's residents into three groups: individual young adults, families with children, and older adults. The following table summarizes how much each group is willing to pay for each playground. Number of Playgrounds Amount Groups Are Willing to pay for Each Playground Individual Young Adults Families with Children $400 $2,000 Older Adults 1 $1,000 2 $300 $1,800 $900 3 $200 $1,600 $800 4 $100 $1,400 $700 5 so $1,200 $600 6 SO $1,000 $500 7 SO $900 $400 8 $o $800 $300 The city council must pay $2,250 to build each playground.
Which of the following is a characteristic of playgrounds and what is the optimal number of playgrounds for the township to build?
A. Playgrounds are nonrival in consumption, and the optimal number of playgrounds is zero.
B. Playgrounds are nonrival in consumption, and the optimal number of playgrounds is two.
C. Playgrounds are rival in consumption, and the optimal number of playgrounds is three.
D. Playgrounds are nonexcludable, and the optimal number of playgrounds is zero.
E. Playgrounds are excludable in consumption, and the optimal number of playgrounds is two.

Answer 1

Answer:

C. Playgrounds are rival in consumption, and the optimal number of playgrounds is three.

Explanation:

The computation is shown below:

For 3 playgrounds, total willingness to pay is

= 200 + 1600 + 800

= 2600 > Marginal cost (2250).

And,

For 4 playgrounds, total willingness to pay is

= 100 + 1400 + 700

= 2200 < Marginal cost (2250).

Therefore, 3 playgrounds should be considered as an optimal and playground would be rival