# (30 pts.) The total demand (marginal benefit) curve for visiting the Great Barrier Reef is as follows

November 24, 2016
.25in;mso-add-space:auto; text-indent:-.25in;mso-list:l0 level1 lfo1″>1. (30 pts.) The total demand (marginal benefit) curve for visiting the Great Barrier Reef is as follows: Price = 5000+1000*Fish Biomass (tons per square mile) -10*Number of Trips.
a. (5 pts.) How does the quantity of fish biomass affect the willingness to pay for an additional trip?

b. (5 pts.) Suppose the density of fish is 1 ton per square mile. Draw the demand curve below, being sure to label the axes and the slope and intercept appropriately.

c. (10 pts.) Suppose the marine preserve charges an entrance fee of \$100. What is the total net benefit to consumers who visit the park (the “consumer surplus”)? In answering this question, continue to assume that fish biomass remains at the level in part b. Also, assume that the only cost to visitors is the entry fee.

d. (10 pts.) Now assume the park implements a program that drastically limits fishing activities within the preserve and engages in a coral restoration program. The eventual result is a 50% increase in fish biomass from the levels described in part b. Assuming the entrance fee from c) remains the same, what is the new consumer surplus? What is the economic benefit (net of costs) to park visitors from the restoration program? What is the impact to revenues from park visitation?

2. (25 points) National Marine Fisheries Service is considering closing a large area of federal waters to fishing in Alaska due to negative interactions of fishing with endangered Steller sea lions (due to capturing of seals in fishing gear and catch of the prey species of the sea lions by fishermen). In doing this, the closures are expected to displace 30 vessels from fishing in the Aleutian Islands, each of which made profits of \$500,000 on an annual basis from fishing in these waters. Best estimates are that all 30 of these vessels will find employment in alternative fisheries, but these fisheries will be less profitable – yielding profits of only \$250,000 per vessel each year.

a. (5 pts.) Calculate the annual cost to the entire industry from the closures.

b. (10 pts.) Assuming a 10 year planning horizon (t=1,…,10), calculate the present value of these costs using a discount rate of r=.04 (show your work). Assume that the first costs are felt at the endof the first year.

c. (10 pts.) At the end of a 10 year period, it is estimated that the closures will result in a growth in the population of Steller sea lions of at least 100 and up to 500 individuals. Combining this information with your findings in part b, come up with a lower and upper bound for the average benefits to society per sea lion (in period 0 dollars) required to overcome these costs.

3. (15 points.) The marginal benefits of abatement of sulfur dioxide are 5000-10*Q, where Q is 1000s of tons of emissions. The marginal cost of abatement is 10Q.

a. (5 pts.) Find an equation giving the totalbenefits of abatement for any level of abatement. Why do total benefits increase at a decreasing rate?

b. (10 pts.) Find the level of abatement that satisfies the “equimarginal principle.” Is this level of abatement the efficient level? Explain.

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