final_08e - Econ M134 UCLA Winter 2008 March 19th 2008...

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Econ M134 UCLA Winter 2008 March 19 th 2008 Prof. Matthew E. Kahn Final Exam This is a 115 point, 180 minute exam. Plan to allocate 1.5 minutes for each point. Please write your name and UCLA ID on your exam. Longer is not better, keep your answers brief and to the point. Read the entire question , and be sure to follow the directions. You may pick up your graded final exam during the Spring Quarter from Ryan. Contact him directly. I. Short Answer (+71 points in total) 1. (+10) You are the Director of the Los Angeles Environmental Agency. The only source of emissions in the city is vehicles. Your Statistics nerds have given you the following information. 1990 2008 2030 Population (in Millions) 4 6 8 Probability own Vehicle .90 .95 1 Annual Miles Driven Conditional that own vehicle in 1000s 10 12 Q Average Emissions per Mile 4 X Z You have promised the Mayor to reduce vehicle emissions in 2008 and 2030 back to 1990s levels. Solve for X such that you achieve this goal. If you expect that Q will equal 14, what must Z equal to achieve this goal? Briefly explain the role of scale and technique effects in determining pollution levels.
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2. Mike owns one tree. Its height, measured in feet, is a function of the tree’s age, measured in years, with production function ( 29 age Feet 50 = . Assume that the real price per foot of wood is always equal to $40. Suppose the cost of cutting down the tree is $10. (note that this is a fixed cost) Assume that the interest rate always equals 4%. Mike’s goal is to maximize the PDV of his profits. a. (+4) Write down the profit function as a function of age, and describe how you will find the optimal tree cutting age. (you need not actually find the age) b. (+4) Now suppose the interest rate is increase to 8% permanently. Will the optimal tree cutting age increase or decrease? Explain. (You need not solve for the new optimum) c. (+4) Now suppose that each year there is a 8 1 ( or 12.5%) chance that Kahn will sneak into the forest and cut down Mike’s tree. In which case Mike will receive $0. Assume the interest rate is 8%.
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This note was uploaded on 11/12/2010 for the course ECON M134 taught by Professor Bresnock during the Spring '08 term at UCLA.

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final_08e - Econ M134 UCLA Winter 2008 March 19th 2008...

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