PS3 - Economics 131 Problem Set #3 October 18, 2009 1. The...

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Economics 131 Problem Set #3 October 18, 2009 1 1. The government of the island of Babbage is trying to decide whether to sell the government-run recycling facility to a private firm. a. You are an economic analyst in the Minister of Planning ʼ s office and are asked to economically valuate the facility. The facility is well-maintained and productive. In your valuation, consider different types of value, whether the facility is valued as a stock or a flow. Explain how you would measure the different values. b. Now you are an economic analyst in one of the private firms that is interested in buying the facility, your manager asks you to perform an economic valuation of the facility. c. In what ways, are the valuations in (a) and (b) different? d. Putting your Ministry of Planning hat back on, what would you recommend to the government? 2. Your friend Sam is going to buy a TV and he is not sure how much he should pay for it. He suspects to watch it for an average of 10 hours a month. He values each hour of TV at \$10, and his yearly discount rate is 0.05. The TV lasts for 10 years. Sam knows you are an economics wiz and asks you how much he should pay for the TV. 3. What does it mean when a person has a discount rate greater than 0, equal to 0, and less than 0? (Hint: Remember that the Net Present Value is just a weighted sum!) 4. Consider a proposal to create a new National Park in the Southern Sierra on government land currently managed by the Bureau of Land Management for cattle grazing, but also used by backpackers, fishers, and other recreational users on lakes within the proposed park ʼ s boundaries. Some effects of adopting the National Park proposal would be to stop the grazing of cattle on land and enhance opportunities for backpackers, fishers, and other recreational users. a.

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This note was uploaded on 12/09/2009 for the course ECON 131 taught by Professor Groves during the Fall '09 term at UCSD.

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PS3 - Economics 131 Problem Set #3 October 18, 2009 1. The...

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