Figure, describes the costs and benefits resulting from different sizes of a ski resort that is being planned in a national forest. Skiers gain benefits from greater ski resort acreage according to the "Marginal Gain of Skiers" curve. At the same time, birders lose viewing opportunities in areas that are negatively affected by the ski resort. The areas that are negatively affected by the ski resort increase as the resort acreage increases. The "Marginal Loss of Birders" curve describes the loss of value suffered by these birders as the ski resort acreage increases. The letters A through H describe individual areas within the graph.
For questions 1 through 4, assume that the Forest Service has decided to allow the ski resort to develop any number of acres from X1 to X5. Further assume that the birders are not organized enough to be able to affect that decision.
Question 1: What acreage would the ski resort choose if negotiation with the birders is successful?
A. X1
B. X3
C. X5
D. None of the above.
A, B, C, or D:
Question 2: What are the total net benefits of the economically efficient number of ski resort acres:
A. Zero since marginal benefit equals marginal cost given economic efficiency.
B. Areas A + C
C. Areas A + B + C + D
D. Areas E + G
A, B, C, or D:
Question 3: What acreage would the ski resort choose if negotiation with the birders is not successful?
A. X1
B. X3
C. X5
D. None of the above.
A, B, C, or D:
Question 4: What would be the total potential gains from trade if the ski resort and the birders were able to negotiate?
A. Areas E + G
B. Areas E + F + G + H
C. Areas A + C
D. Areas A + B + C + D
A, B, C, or D: