A local college is deciding whether to conduct a campus beautification initiative that would involve various projects, such as planting trees and remodeling buildings, to make the campus more aesthetically pleasing. For the students of the college, the visual appearance of the campus is and . Thus, the visual appearance would be classified as a public good. Suppose the college administrators estimate that the beautification initiative will cost $66,120. To decide whether the initiative should be undertaken, administrators conduct a survey of the college's 1,820 students, asking each of them their willingness to pay for the beautification project. The average willingness to pay, as revealed by the survey, is $28. The benefit of the beautification initiative, as suggested by the survey, is . Because the estimated benefit is than the cost, the college administrators undertake the beautification initiative. The calculation of the benefit of the beautification initiative relied on the ability of the administrators to capture the true willingness to pay of each student accurately. Which of the following scenarios would cause the survey used by the college administrators to yield misleading data on willingness to pay? Check all that apply. Students believe that if the initiative does not happen, the funds for the initiative will not be spent elsewhere. Students believe they will eventually be charged their willingness to pay.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 1MC

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A local college is deciding whether to conduct a campus beautification initiative that would involve various projects, such as planting trees and remodeling buildings, to make the campus more aesthetically pleasing.

For the students of the college, the visual appearance of the campus is and . Thus, the visual appearance would be classified as a public good.

Suppose the college administrators estimate that the beautification initiative will cost $66,120. To decide whether the initiative should be undertaken, administrators conduct a survey of the college's 1,820 students, asking each of them their willingness to pay for the beautification project. The average willingness to pay, as revealed by the survey, is $28.

The benefit of the beautification initiative, as suggested by the survey, is

. Because the estimated benefit is than the cost, the college administrators undertake the beautification initiative.

The calculation of the benefit of the beautification initiative relied on the ability of the administrators to capture the true willingness to pay of each student accurately.

Which of the following scenarios would cause the survey used by the college administrators to yield misleading data on willingness to pay? Check all that apply.

Students believe that if the initiative does not happen, the funds for the initiative will not be spent elsewhere.

Students believe they will eventually be charged their willingness to pay.

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