Spring 2010 Exam 2 Solution

Here are the final numerical results for each section 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 P1/Q3

(a) Q1=60, Q2=60; (b) $120; (c) efficient Q's: Q1=45, Q2=90; (d) actual Q's: Q1=60, Q2=100 (source 2 cleans up all of its pollution); (e) DWL=1000.

Question P2/Q2

(a) Number of visitors=5550; (b) A=19.49, B=0.0017; (c) CS=110,077; (d) $1.11 M.

Question P3/Q1

(a) PV=$45,000; (b) option to sell the permit for $90,000 in period 1 if the price is high or to retain it and save $30,000 if the price is low; (c) do not sell.

Question P4/Q5

(a) Sell 30 miles; (b) sell zero miles because the MSB of the 100th mile is now $4M.

Question P5/Q6

(a) The table is shown below:

(b) With the backstop, the table becomes:

(c) Backstop production=35.

Question P6/Q4

(a) Equilibrium price for exploration=250;

(b) The table without exploration:

(c) The table with exploration:

(d) Resource found via exploration=150; (e) expected number of wells=375.