Question

Suppose a new recreational neighborhood park would cost​ $20,000, including opportunity​ costs, to construct and maintain. if​ built, the park would be a public good loading.... for​ simplicity, assume the neighborhood park would be used by three​ families, each of whom would derive a marginal benefit equivalent to​ $8,000 from the park.should the neighborhood park be​ built?

Answer 1

The decision to build the park or not would be based solely on the cost – benefit relationship of this project. Since there is no other factor considered in this problem, you only need to see if the benefit of constructing the park would exceed its cost. In this problem, the cost to construct the park is $20,000 while the marginal benefit would be $24,000 ($8,000 x 3 families that can benefit from this project). Therefore, you can say that the benefit has exceeded its cost. As a conclusion, the neighborhood park should be built because it benefits the families living in that area more than its cost.