Spring 2015 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 1

(a) Qa=1000; MCA=$800.

(b) Permits to each firm: Qp1=200; Qp2=800.

(c) Qa=900.

(d) DWL=$10,000.

(e) Pp=$1000.

(f) Firm 1 buys 300 permits from 2; value is $300,000.

Question 2

(a) Qat=250.

(b) Qp=550; also, Pw was set to $750 (the MCA).

(c) Qat=205.

(d) Qp=670 (demand hits the horizontal part of the supply curve); as a result, Qat would be 800-670=130.

(e) Pp=$750.

(f) Qw=120.

(g) DWL=$22,500.

Question 3

(a) 58,000.

(b) A=49, B=-0.0005.

(c) CS=$2.401 M.

(d) Total benefit=$4.901 M.

(e) Expected PV=$15.909 M

(f) The city should not sell the land.

Question 4

(a) Cases now=45 per year.

(b) Prevented cases per year: L=1.25, M=24.5, H=4.25.

(c) NPV of each policy: L=-$300 M, M=$160M, H=$140M.

(d) Adopt M and H.

(e) Cases prevented: 28.75 per year.

Question 5

(a) Results without the backstop:

Period	R	MEC	P	Q
0	100	300	400	1200
1	150	300	450	1500
2	225	300	525	1750

(b) Results with the backstop:

Period	R	MEC	P	Q
0	40	300	340	1320
1	60	300	360	1680
2	90	300	390	2020

(c) Backstop quantity=570.

(d) Period 2.

Question 6

(a) Area A will be explored; the MC of new reserves will be $400.

(b) P=$400; R=$200; Q consumed=550.

(c) Q found by exploration=250.

(d) Expected wells=125.