# Mid2 2011 ```EEP 1/Econ 3 Peter Berck Exam II Fall 2011
Do all four questions. Points are shown in ().
1. (1) What are hypothetical bias and scope bias? (4) A contingent valuation survey contains much
more than just the question, “Would you vote yes or no on a proposal if the cost to you were
\$\$\$.” Name at least four other part of a contingent valuation survey, explain what they are and
why they are there.
2. (2) Draw a picture with isocost lines and an isoquant; use it to explain the cost minimizing choice
of technique and the choice of technique with an effluent standard. Be sure to label the diagram
and your chosen techniques. (1) Explain how your diagram shows that the technique chosen
with the effluent standard costs more than the other technique. (2) Now draw one more line
on your diagram and use it to explain how an increased price for effluent could lead to the same
technique as was chosen under the effluent standard . (1) From your diagram, does pricing
effluent cost the firm more than simply regulating effluent, effluent per unit output held
constant?
3. (1) Define the cost function, C(q). (3) Assuming that output is nonzero, what quantity does a
price taking firm choose and why?