midII 2014

EEP 1/Econ 3 Peter Berck Exam II Fall 2014
Do all four questions. Points are shown in ().
1. (5) Your assignment is to find the value of an as-not -yet -built ski area. Luckily you are able to
survey people who use existing ski areas and so you decide to do a travel cost study.
a. (1) What do you do you lose and what do you gain by doing a travel cost study rather
than a contingent valuation study?
b. (1) What data will you collect (think of at least one data item beyond the bare minimum
and justify your choice) ?
c. (3) How will you use your data to find the demand curve for skiing?
2. (8) This question refers to the diagram below, which describes a firms choice of inputs. Write
your name on the diagram and turn it in with your exam. The price of “Other Stuff) is 8.
a. (2) What is the price for “Clean Air” for the solid line? For the dashed line?
b. (1) Draw an isoquant tangent to both the solid line and the dotted line. Identify the
points of tangency on your graph (you may just put a dot of the graph to show the
point.) Label the one on the high clean air price line, “with high price.”
c. (1)Make a chart with two columns and show the amount of Clean Air demanded by the
firm as a function of the price of clean air.
d. (2)Now draw one further line on your diagram and use it to show the cost for the “with
high price” input bundle if the price of clean air were the low price instead. Compare
the cost of choosing this bundle at the low and high price for air.
e. (2) Explain why your findings are important for pollution control. You will want to
mention effluent standard and effluent tax.
3. (4) Draw the appropriate diagram and use it to explain:
a. (2) Explain why the shutdown point is at the mimimum point of AVC.
b. (2) Explain why p = mc for a price taking firm
4. (3) What are three important concepts from Krutilla’s “Conservation Reconsidered”? Briefly
define each.
Other Stuff