midterm - Department of Environmental Economics and Policy...

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Department of Environmental Economics and Policy University of California, Berkeley Economics EEP101/ECON125, Spring 2003 Professor Zilberman Midterm Instructions: Please remember to write your name and Student ID# on your bluebook. Answer all questions. Each question should start on a new sheet of paper and should be well marked!!!. Page limits are there to help you, remember to manage your time during the exam. Each question will have equal points. Good luck! Part 1: Market Structure and Externality City of Emeryville hired two top students at EEP101 to investigate the project of Emeryville Mall. After a semester hard work, they gathered the following information, and have two proposals to the Committee. The private marginal benefit MPB and the the marginal cost MC are given by MPB = 320 - 2 Q and MC =40+3 Q where Q is the number of shops in Emerville Mall. This project will cause negative externality such as traffic congestion, noise pollution, and etc. It also generates positive externality. For example, it may be good for the housing market since life is much more convenient with a big shopping mall in the neighborhood. To summarize, the net external marginal benefit is MEB = Q . 1. Numerical Questions (a) Proposal One : Assume it is a competitive market, find out the optimal number of shops in Emeryville Mall Q c and the optimal price P c ; and the total social welfare and deadweight loss in comparison with the social optimality. (b) Proposal Two : Assume a middleman operates Emeryville Mall. This middleman buys the future mall from the city, and sells to potential owners. find out the optimal number of shops in Emeryville Mall Q o , price this middleman pays to the city P o 1 , price potential owners pay to this middleman
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midterm - Department of Environmental Economics and Policy...

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