Previous Exams

# Spring 2008 Exam 2 Solution

Here are the final numerical results for each section of version P of the exam.  You can use them to check your work if you do the exam for practice.  If you have trouble with the problems, or don't get the answers shown here, stop by during office hours or make and appointment and we can go over them.

### Question 1

(a) 9000 visitors; (b) $187,500 CS per year; (c) PV of keeping the land as a public beach is$3.75 million.

### Question 2

(a) NPV of leaving the area natural in period 0 is $78 million. (b) The dam should not be constructed because the NPV exceeds the$72 million from conversion.  The main reason the number is higher is the option value of getting to decide on conversion in period 1 after finding out whether benefits are $20 million or$200 million.

### Question 5

(a) table for the no-backstop case is shown below:

 Period R MEC P Q 1 300 400 700 300 2 600 400 1000 300 3 1200 400 1600 300 Total 900

(b) table for the backstop case:

 Period R MEC P Q 1 200 400 600 400 2 400 400 800 400 3 800 400 1200 400 Total 1200

(c) total amount produced via the backstop = 300.

### Question 6

(a) 350; (b) the table is shown below:

 Period P Q 1 175 825 2 350 650 Total 1475

Note that the royalty on land-based gas is equal to the price since the MEC = 0; (c) quantity of gas found = 375 units; (d) expected number of wells = 375; (e) amount spent on exploration = \$93,750.

URL: https://wilcoxen.maxwell.insightworks.com/pages/2951.html
Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 12/18/2012