Answer & Explanation:Good exterior home maintenance leads to higher
property values throughout a neighborhood.
Of course, the gains in property values must be balanced against the
opportunity cost of time for those who do the maintenance. The information below applies to a particular
residential neighborhood. The first two columns show a list of home maintenance
tasks and how much each task would raise the total value of property in the
neighborhood. (The gain in total value is spread evenly over the seven houses
in the neighborhood, and everyone in the neighborhood knows and agrees upon the
gain created by each task). The second two columns list the residents of the
neighborhood, and the opportunity cost of a day of time for each resident. Each
resident has 1 day available for maintenance work, and each task takes one day.
Tasks Total Increase in Property values Resident Opportunity CostPlant flowers in median $ 500 Pete $400
Install streetlights $1,000 Angela $1,000
Paint shutters $800 Kir
k $2,000
Replace rusty siding $600 Ruth $100
Repair sidewalk $900 Sam $450
Plant trees $300 Beverly $300
Plant lilacs $200 Gertrude $250
Repair curbs $400
a.
Construct and plot on a single graph the marginal
benefit and marginal cost schedules for home repair tasks. (Hint: the
horizontal axis of this graph is the
number tasks undertaken in the neighborhood, and the vertical axis is
the marginal cost/benefit to the neighborhood of each task).
b.
What is the optimal amount of time to devote to home
maintenance in this neighborhood?
c.
Who should devote time to home maintenance?
d.
What tasks should be done?
e.
Suppose that people are assigned tasks as follows:
Pete plants flowers in the median, Angela installed the streetlights, Kirk
paints the shutters, Ruth replaces siding, Sam repairs the sidewalk, Beverly plants trees, and
Gertrude repairs the curbs. Each gets paid the resulting increase in property
values. Does this scheme works to bring
about efficient resource allocation? Explain.