The residents of the town Ectenia all love economics and the mayor proposes building an economics musuem. The musuem has a fixed cost of $2,400,000 and no variable costs. There are 100,000 town residents, and each has the same demand for musuem visits: QD =10-P, where P is the price of admission a. Graph the musuems average-total-cost curve and its marginal cost curve. What kind of market would describe the musuem? b. The mayor proposes financing the musuem with a lump- sum tax of $24 and then opening the musuem to the public for free. How many times would each person visit? Calculate the benefit each person would get from the musuem, measured as consumer surplus minus the new tax. c. The mayor's anti tax opponent says the musuem should finance itself by charging an admission fee. What is the lowest price the musuem can charge without incurring losses? d. For the break even price you found in part (c), Calculate each resident's consumer surplus. Compared with the mayor's plan, who is better off with this admission fee, and who is worse off? Explain. e. What real world considerations absent in the problem above might provide reasons to favour an admission fee?
The residents of the town Ectenia all love economics and the mayor proposes building an economics musuem. The musuem has a fixed cost of $2,400,000 and no variable costs. There are 100,000 town residents, and each has the same demand for musuem visits:
QD =10-P, where P is the price of admission
a. Graph the musuems average-total-cost curve and its marginal cost curve. What kind of market would describe the musuem?
b. The mayor proposes financing the musuem with a lump- sum tax of $24 and then opening the musuem to the public for free. How many times would each person visit? Calculate the benefit each person would get from the musuem, measured as
c. The mayor's anti tax opponent says the musuem should finance itself by charging an admission fee. What is the lowest price the musuem can charge without incurring losses?
d. For the break even price you found in part (c), Calculate each resident's consumer surplus. Compared with the mayor's plan, who is better off with this admission fee, and who is worse off? Explain.
e. What real world considerations absent in the problem above might provide reasons to favour an admission fee?
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