Spring 2016 Exam 1 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 1

(a) ENPV of B = $1.632 M

(b) ENPV of R = $1.9 M

(c) R is better by about $267k.

Question 2

(a) Market: P = $170, Q = 17,000

(b) T = $140

(c) Efficient: Ps = $100, Pd = $240, Q = 10,000

(d) Change in CS for a type-H individual = -$82,600

(e) Revenue = $1.4 M

(f) Gain in SS = $490k

Question 3

(a) Tax = $4 (rounded from $4.01)

(b) Q = 8,000

(c) Revenue = $32,000

Question 4

(a) Market equilibrium: P = $19, Q = 162

(b) Efficient equilibrium: Q = 108, Pd = $46, Ps = $16

(c) Buyer price: $46

(d) Change in CS = -$3,645

(e) Change in PS = $2,835

(f) Change in externality = $2,025

(g) Overall gain = $1,215

Question 5

(a) Gain under tax = $187.50

(b) Gain under recycling = $100

(c) The tax policy is significantly better: eliminates many units that produce less surplus than they cost to recycle.