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E202Solutions5.3 - a If the tour is free and the warden...

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a. If the tour is “free” and the warden operates on a first-come, first-served basis, what will the total consumer surplus be for the four people who get to go on the tour that day? Answer : When there is no charge for the tour, consumer surplus is the sum of the reservation price for those taking the tour. The combined consumer surplus when the four who arrive first take the tour is $20 + $14 + $30 + $15 = $79. b. Suppose the warden solicits volunteers to postpone their tour by offering increasing amounts of cash compensation until only four people still wish to see the caves that day. If he gives each volunteer the same compensation payment, how much money will he have to offer to generate the required number of volunteers? What is the total economic surplus under this policy? Answer : An offer of $15 compensation generates 3 volunteers to return another day: Fran, Jack and Jon. The four who go on the tour receive a total consumer surplus of $40 + $30 + $20 + $17 = $107. The warden pays $45 in compensation payments to the three volunteers. Total
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