04 Jun Question 1. A new public works project requires 500,000 hours of labor to complete. a. Suppose the market for labor is perfectly
Question
1. A new public works project requires 500,000 hours of labor to complete.
a. Suppose the market for labor is perfectly competitive and the equilibrium market wage is $20/hr. What is the opportunity cost of the labor employed in the public project?
b. Suppose that currently, there are some unemployed workers that would be willing to work for $15/hr. What is the opportunity cost of the unemployed labor that would be used in the public project? Does this cost vary depending on the fraction of would-be unemployed workers hired for the project?
c. If your answers to (a) and (b) are different, explain why.
4. The city of G ville is considering whether to build a new public swimming pool. This pool would have a capacity of 700 swimmers per day, and the proposed admission fee is $5 per swimmer per day. The estimated cost of the swimming pool, averaged over the life of the pool is $3 per swimmer per day. G ville city commissioners have hired you to assess this project. Fortunately, the neighboring town, S ville, is identical and already has a pool, and the town has randomly varied the price of pool admission to determine how price affects usage (quantity demanded). Here are the results:
Swimming pool price per day Number of swimmers per day
$10 200
$8 400
$6 600
$4 800
$2 1,000
a. If the swimming pool is built as planned, what would be the net benefit per day from the swimming pool? What is the consumer surplus for swimmers?
b. Given this information, is a 700-swimmer pool the optimal size pool to build for G ville (assuming that the cost per swimmer does not vary with the size of the pool)? Explain.
5. Jellystone National Park is located 15 minutes away from City A and 45 minutes away from city B. Cities A and B each have 100,000 residents, and residents in both cities have the same income and preferences for national parks. Assume the cost for an individual to go to a national park is represented by the cost of the time it takes for him/her to get to the park. Also, assume that the cost of time for individuals in cities A and B is $0.30/minute.
You observe that each resident of city A goes to the National Park 15 times per year while each resident of city B goes 5 times per year. Assume the following: the only people who go to the park are the residents of cities A and B; the cost of running the park is $1,000,000/year; the social discount rate is 10%; and the park lasts in perpetuity.
a. Compute the cost per visit to the park for a resident of each city.
b. Assuming that those two observations (costs per visit and number of visits per resident of city A and costs per visit and number of visits per resident of city B) correspond to two points of the same linear demand curve for visits to the national park, derive the demand curve for the park. What is the consumer surplus for the residents of each city? What is the total consumer surplus?
c. There is a timber developer who wants to buy the park to run his/he
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