Reference no: EM133077376

A. The initial cost of constructing a permanent dam (i.e., a dam that is expected to last forever) is $800 million. The annual net benefits will depend on the amount of rainfall: $40 million in a "dry" year, $60 million in a "wet" year, and $110 million in a "flood" year. Meteorological records indicate that over the last 100 years there have been 76 "dry" years, 22 "wet" years, and 2 "flood" years. Assume the annual benefits, measured in real dollars, begin to accrue at the end of the first year. Using the meteorological records as a basis for prediction, what are the net benefits of the dam if the real discount rate is 5 percent?

B. A worker, who is typical in all respects, works for a wage of $50,000 per year in a perfectly safe occupation. Another typical worker does a job requiring exactly the same skills as the first worker, but in a risky occupation with a known death probability of 1 in 2,000 per year and receives a wage of $60,000 per year. What value of a human life for workers with these characteristics should a cost-benefit analyst use?

C. At the current market equilibrium, the price of a good equals $48 and the quantity equals 12 units. At this equilibrium, the price elasticity of supply is 1.5. Assume that the supply schedule is linear.

i. Use the price elasticity and market equilibrium to find the supply schedule.

ii. Calculate the producer surplus in the market.

D. When it might be useful to consider horizon value?