# Fall 2018 Final Exam 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 4

(a) EV of federal policy = -$2B; EV of state policy = -$200 M. Neither adopts.

(b) EV to state with the federal policy in place = +$100 M (-$200 M + $300 M); state adopts. EV to federal government of offering the grant and then deciding whether or not to implement its own policy based on the outcome at the state level:$1.5 B; the federal government would offer the grant.

### Question 5

Q = 28; P = $700; profit =$920.

### Question 6

Q = 40; P = $5,000; profit =$160,000.

(a) EV = -$201 k; firm does not undertake it. (b) PV of CS =$3.409 M; EV of CS = $681 k. ### Question 8 EV to the firm =$200 k; the firm would undertake the project. EV to the government = $280 k; the government would want to offer the policy. Not required but worth noting: the net gains to the firm and the government are$480 k, which is exactly the sum of the expected CS ($681 k) and the firm's EV without the policy (-$201 k).

URL: https://wilcoxen.maxwell.insightworks.com/pages/4681.html
Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 01/04/2019