Consider a natural site that yields great pleasure to the visitors, but only doe

Question

Consider a natural site that yields great pleasure to the visitors, but only does so if the area is not too crowded. To be more precise: As long as there are less than or equal to 8 persons visiting the area, each person derives a benefit of 14. Costs of getting to the site are 8 for all, no matter the number of visitors. However, for each person in assess of 8, the benefit to all visitors is reduced by 1 per additional person. Exercise 4.1: Find the efficient number of persons Exercise 4.2: How many people would we expect that there will be? Exercise 4.3: Explain carefully what type of externalities we have here Exercise 4.4: Describe ways to reduce the number of users (you might also touch on the issues of efficiency versus fairness for your solutions)

Explanation / Answer

1 The efficient number of people will be 8 as the marginal benefit is maximized when no. of persons are 8 and it decreases when more persons are getting added.

2. A person while cpming to site will look at his own personal benefir and not at the benefits of others , So people will continue to come till their marginal benefit is zero.

So, After 8 person , Marginal benefit is decreasing by addition of each person , So it will become zeo when 14 more person joins.

Hence we expect 14 + 8 = 22 persons

3. one way to reduce the number of visters is by introducing the fee of 14 , so that only 8 or less than people visits the site.

Other way would be to restrict the maximum number of entry to only 8 persons.

If you don't understand anything , then comment , I will revert back on the same.

And If you lied the answer then please do review the same. :)

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