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The Los Angeles area has long been plagued by urban smog.

Suppose that one of several ozone-reducing policy options is being evaluated by economists using benefit-cost analysis. Since the policy will be implemented over time, economists assume thatper resident benefits will accrue in increments of $500 at the end of each of the next three years. a) Find the present value of benefits (PVB) in for each resident, at an annual social discount rate of 9%. PVB Calculations: Round to two decimal places. Do Not include $ signs. Year 1: $ ___458.72___ Year 2: $ ___420.84___ Year 3: $ ___386.09___ (20 %) (20 %) (20 %)

Present Value of Total Benefits (per resident) = $ ___1265.65___ (5 %)

b) Assume there are 2 million adult residents in the Los Angeles area to whom the per-resident PVB would accrue. Also assume that the estimated present value of costs (PVC) for this policy option is $2 billion. Round values to two decimal places and Do Not include the $ sign. What is the total present value of benefits? $ ___2.53___ (15 %) billion What is the Net Present Value of Benefits? $ ___0.53___ billion (15 %)

Is this project a worthwhile investment? (Yes/No) ___Yes___ (5 %)

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7 / 7 points

Eric and Kyle are fishermen with different equipment and, as a result, different costs for catching fish. Erics costs for catching fish are $1000 per ton for the first five tons and then $2500 per ton for any additional tons. Kyle can harvest fish at a cost of $3000 for the first 15 tons and then $1400 for any additional tons. Instructions: Enter dollar values as whole numbers. a. If society wants 30 tons of fish and for some reason will only allow one of the two guys to do all the fishing, which one should society choose if it wants to minimize the cost of catching those 30 tons of fish? ___kyle___ (10 %) should catch all the fish. i) How much will the total cost of catching the fish be? $ ___66000___ (10 %)

ii) What will the average cost-per ton be for the 30 tons? $ ___2200___ (10 %)

b. If society wants 30 tons of fish and wants them for the least cost, regardless of who catches them, how much should Eric and Kyle each catch? i) Eric should catch ___5___ (10 %) tons, and Kyle should catch ___25___ tons. (10 %)

ii) How much will the total cost of catching 30 tons be? $ ___64000___ (10 %)

Instructions: Round your answer to two decimal places. iii) What will the average cost-per ton be for the 30 tons? $ ___2133.33___ (10 %)

Instructions: Enter dollar values as whole numbers. c. Suppose that Eric and Kyle can both sell whatever amount of fish they catch for $3000 per ton. Also suppose that Eric is initially given ITQs for 30 tons of fish, while Kyle is given ITQs for zero tons of fish. Kyle is willing to pay Eric $550 per ton for as many tons of ITQs as Eric is willing to sell to Kyle. i) How much profit would Eric make if he used all the ITQs himself? $ ___22500___ (10 %)

What if Eric sold 25 tons worth of his ITQs to Kyle while using the other 5 tons of ITQs to fish for himself? ii) Eric's profit will be $ ___23750___ (10 %)

d. What price per ton can Kyle offer to pay Eric for his 25 tons of ITQs such that Eric would make exactly as much money from that deal (in which he sells 25 tons worth of ITQs to Kyle while using the rest to fish for himself) as he would by using all 30 tons of I TQs for himself? $ ___5000___ (10 %) per ton of ITQs.

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8 / 8 points

The state of Connecticut is well known for its almandine garnet. The Almandine Garnet Mine has plans to extract 80 tons over the next two years. The production benefits and costs are: MB = 40 0.1Q Assume a discount rate of 5%. a) Calculate the simplified equation for net marginal benefits (NMB), using the equation of the line format as shown for MB and MC above: NMB = ___4-0.35Q___ (40 %) MC = 36 + 0.25Q

b) What is the profit maximizing quantity the firm should extract in year 1 and year 2? Enter values to one decimal place. Year 1: ___39.3___ tons Year 2: ___40.7___ tons (30 %)

(30 %)

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