Xid-6030459_2 - Tuesday Sept 20 Discounting a technique for the calculation of the present value of a future stream of benefits the process by

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T uesday , Sept. 20 Discounting - a technique for the calculation of the present value of a future stream of benefits; the process by which benefits which are to be realized in the future are expressed in the present. Example: Suppose you are to decide between a conventional gasoline-powered car (G), or a hybrid vehicle (H). The price of the hybrid vehicle is $2,500 higher than the gas-powered car. Annual fuel costs are $400 for the hybrid vehicle and $1,000 for the conventional gas-powered car. years 0 1 2 3 4 5 Cost: G $15,000 $1000 $1000 $1,000 $1,000 $1,000 H $17,500 $400 $400 $400 $400 $400 Saving: 0% -$2,500 $600 $600 $600 $600 $600 $3000 3% -$2,500 $582 $566 $549 $533 $518 $2748 7% -$2,500 $561 $524 $490 $458 $428 $2461 At 3%, NPV of saving on fuel compensates for higher price of hybrid car; At 7%, NPV of fuel saving does not compensate for higher price . . 1. Efficiency conditions static efficiency– at a specific point in time, or when time is not a consideration dynamic efficiency - over time I n an efficient competitive market: 1
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Property rights are clearly defined - all resources & factors of production are privately owned - all costs and benefits accrue to owners and users of resources so…. Social costs and benefits are equal to private costs and benefits - property rights can be voluntarily transferred (exchanged) - property rights are enforceable firm's price = MR = MC; market P = MR; individual firms have no effect on market price; Each individual firm is a price taker ie, takes the market price as given If…. Demanders are the only beneficiaries of the good…
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This note was uploaded on 04/05/2012 for the course ECP 3302 taught by Professor Staff during the Fall '11 term at Florida State College.

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Xid-6030459_2 - Tuesday Sept 20 Discounting a technique for the calculation of the present value of a future stream of benefits the process by

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