Spring 2012 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/Q4

(a) Qa total = 90;

(b) Qp1 = 120; Qp2 = 90; 210 permits total;

(c) Qa total = 120;

(d) DWL = $5,625;

(e) P = $225;

(f) Firm 1 sells 15 permits to firm 2 for $3,375 of revenue.

Question P2/Q1

(a) Number of visitors=13,025;

(b) A = 13.166, B = 1/1595 (0.000627);

(c) CS = $138,245;

(d) Value to non-visitors = $120,000;

(e) PV = $2.58 million.

Question P3/Q3

(a) 220 cases;

(b),(c) 20 for 20 μg/L, 100 for 10  μg/L;

(d),(e) $20 million for 20 μg/L, -$200 million for 10 μg/L;

(f) 20 μg/L.  The public's willingness to pay for risk reduction is greater than that policy's cost.  In contrast, the cost of the 10 μg/L standard is higher than the public's WTP.

Question P4/Q6

(a) Neighborhood L because the MSC is $480K there instead of $600K in H;

(b) Q = 800, with a cost of 800*$400K = $320M;

(c) SS = $768M;

(d),(e) gross benefits: H=$960M, L=$192M;

(f) net benefit to L: $192M - $213M construction - $64M externalities = $85M loss;

(g) Area L will oppose the plant unless it is compensated at least $85M.  

Question P5/Q2

(a) The table is shown below:

Pd	R	MEC	P	Q
0	30	300	330	135
1	60	300	360	420
2	120	300	420	690

(b) With the backstop, the table becomes:

Pd	R	MEC	P	Q
0	10	300	310	145
1	20	300	320	440
2	40	300	340	730

(c) Backstop production=70.

Question P6/Q5

(a) MDC = $120;

(b) P = $320;

(c) The table without exploration:

Pd	R	MEC	P	Q
0	100	200	300	350
1	200	200	400	800

(d) The table with exploration:

Pd	R	MEC	P	Q
0	60	200	260	370
1	120	200	320	840

(e) Resource found via exploration = 60;

(f) Expected number of wells = 20.