Previous Exams

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.

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Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 12/18/2012