Congestion becomes a problem for nearby residents

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Reference no: EM132302975

Suppose there's a beach where congestion becomes a problem for nearby residents after the first 80 visitors per day. Specifically, assume that:

  • Marginal Benefit ($MB) = 200 - Q
  • Travel Cost per visit ($TC) = 20
  • Congestion Costs ($CC) = Q - 80
  • Marginal Social Cost ($MSC) = TC + CC

Where Q is the number of visits.

With the congestion externality, the number of people visiting the park exceeds what is efficient even with a travel cost of $20. 

The government is setting an entrance fee of $12 per visitor to address the problem.

Who gains and who loses from this fee, and by how much?

What are the net benefits of this fee?

Is there a better policy from a benefit-cost perspective? What are the maximum possible benefits from this policy?

Reference no: EM132302975

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