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1423class26 - 14.23 Government Regulation of Industry Class...

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14.23 Government Regulation ± of Industry± Class 26: Preparation for Final Exam MIT & University of Cambridge± 1
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Last Year’s Exam • Model Answers to Questions 1-6. • Model Answers to Question 7-8. • Discussion of answer to Question 9. 2
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2002 Exam Question 1: A classic way of introducing pollution regulation into an urban area is the “rollback” method. First, you determine the maximum tolerable level of a particular pollutant, X s . Next, you find the maximum current concentration of that pollutant in the urban area, X m . Presumably, it is the case that X s < X m (otherwise, there is no problem). Regulations then require all polluters in the city to reduce emissions from their current level of e m to e s = e m ( X s / X m ). Discuss the efficiency of this approach. 3
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2002 Exam Question 2: Chris has been hired by the city of Cambridge to design a hazardous waste landfill and she is trying to decide whether it is worth spending $1,000,000 to install a special liner that reduces the probability of a leak from 0.001 to 0.0001. If a leak does occur, the expected number of fatal cancers in Cambridge can be expected to rise by 100. Suppose that Chris recommends the installation of the special liner. What do we know about her valuation of a life saved? (I am looking for a numeric response here.) 4
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2002 Exam Question 3: The development of microwave transmission technology in the 1950s is often given as a reason why the long distance telephone market stopped being a natural monopoly as sending long distance telephone signals over microwave transmission stations require a much lower fixed cost than doing so over wires. Microwave transmission stations, however, have been largely replaced by fiber optic wire in the 1990s, which has meant a return to stringing wires between locations. Why might long distance telephone not be a natural monopoly industry, even with this technological change?
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