Question

The residents of the town Ectenia all love economics,

and the mayor proposes building an economics

museum.

The museum 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 museum visits:

QD = 10 − P, where P is the price of admission

Answer 1

. Fixed cost, FC=$\$2,400,000$

Number of residents, N=100,000

Average Fixed Cost, AFC= FCN=$\frac{\$2,400,000}{100,000}=\$24$

FCN=$\$24$

Since there is no variable cost,

Marginal Cost, MC=0

Since it is a monopoly market, the price equals the average cost, which is $24, then the consumer surplus is,

$=\$24×10=\$240$

The benefit each person would get

Consumer surplus−tax$=\$240−\$24=\$216$

Thus, each person gets a benefit of $\$216$ .

The consumers are better off.