9. Travel Cost

Due Tuesday 4/10

Suppose you've been asked to decide whether a particular scenic area now used as a park should be converted to a housing development. The two uses are mutually exclusive. At the moment, no admission fee is charged and 400 people visit the park each day. A researcher has interviewed a sample of the visitors and concluded that they come from 5 geographic zones. She has collected the following information, where "Travel Cost" is the round-trip transportation cost of visiting the park:

1. Using the travel cost method calculate the number of people who would visit the park if an admission fee of $1 were imposed.
2. It is also known that the total number of visits to the park (including people from all zones) is given by an equation of the form: P=A-BQ, where P is the admission fee, Q is the number of visitors, and A and B are constants. Using this fact and the information above (including, if necessary, the results from part 1) calculate the daily value of keeping the land as a park. If the value of the housing development is $900 per day what should be done with the land? Explain.
3. Is the value of the park calculated in part (2) likely to understate or overstate the true value? If so, explain why and discuss how you could improve the estimate. How does this affect the decision in part (2), if at all?