Table 11-5
A small island off the coast of Cape Cod contains two restaurants and two retail stores. Tourists need to take a ferry boat to reach the island, but with a recent slowdown in the economy, tourists are less willing to pay for the boat ride to visit the island. The owners of the restaurants and stores on the island - Restaurants 1 and 2, and Stores A and B - think that if tourists could ride the ferry for free, they would be happy to visit the island, eat and shop. The business owners are considering contributing to a pool of money that will be used to pay for roundtrip ferry service each day. The table represents their willingness to pay, that is, the maximum amount that each business owner is willing to contribute, per day, to pay for each ferry trip.
-Refer to Table 11-5. Suppose the cost to run the ferry for each roundtrip is $500. How many ferry trips should there be to maximize the total surplus of the four business owners?
A)1
B)2
C)3

Question

Table 11-5
A small island off the coast of Cape Cod contains two restaurants and two retail stores. Tourists need to take a ferry boat to reach the island, but with a recent slowdown in the economy, tourists are less willing to pay for the boat ride to visit the island. The owners of the restaurants and stores on the island - Restaurants 1 and 2, and Stores A and B - think that if tourists could ride the ferry for free, they would be happy to visit the island, eat and shop. The business owners are considering contributing to a pool of money that will be used to pay for roundtrip ferry service each day. The table represents their willingness to pay, that is, the maximum amount that each business owner is willing to contribute, per day, to pay for each ferry trip. 
-Refer to Table 11-5. Suppose the cost to run the ferry for each roundtrip is $500. How many ferry trips should there be to maximize the total surplus of the four business owners?
A)1 
B)2 
C)3

Quizplus · Accepted Answer

To maximize total surplus, the ferry should run until the marginal benefit equals the marginal cost. If the cost is $500 per trip, the ferry should run as many trips as the combined willingness to pay of the business owners covers this cost. Assuming the table shows that the combined willingness to pay for the third trip is still above $500, but not for the fourth, then 3 trips maximize total surplus.

Table 11-5 A Small Island Off the Coast of Cape Cod Contains