Ask Question, Ask an Expert

+61-413 786 465

[email protected]

Ask Microeconomics Expert

Economics


Home >> Microeconomics

The Big Choo Choo Company (BCCC) owns a rail line from the town of "Isolated" to the coastal port of "Notso." It cost them $20 million to build the rail line in 1983. It is now 1997. The Small Gold Company (SGC) has discovered gold deposits near Isolated that they want to export overseas. There are almost 20,000 ounces of gold in the mine. The current price of gold is $400 per ounce and it is expected to remain at that level over the life of the mine. SGC want to transport the gold to the port using the Notso-Isolated rail line. They have no alternative transportation substitutes available.

a. Suppose that it costs BCCC $5 per ounce to transport the gold from Isolated to Notso. They have free capacity on the line. It costs SGC $10 per ounce in shipping from Notso to their overseas buyers. It will cost SGC $1 million to make the mine operational and $100 to extract each ounce of gold. BCCC and SGC negotiate over the rail freight charge per ounce for SGC's gold. What is SGC's Willingness-to-Pay for transport of gold, as a per-ounce-price? What is BCCC's Willingness-to-Sell (as a per-ounce price)? Use decision trees to illustrate your answer.

b. Now suppose that SGC can build an airport close to Isolated for $2 million and purchase a cargo plane for $500,000 that could ship the gold straight to its overseas buyers for $25 per ounce. Does this affect WTP or WTS? What are the new values of WTP and WTS?

c. Is it likely that SGC will build the airport? What considerations might make such an outcome more likely?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M91732250

Have any Question?


Related Questions in Microeconomics

Question show the market for cigarettes in equilibrium

Question: Show the market for cigarettes in equilibrium, assuming that there are no laws banning smoking in public. Label the equilibrium private market price and quantity as Pm and Qm. Add whatever is needed to the mode ...

Question recycling is a relatively inexpensive solution to

Question: Recycling is a relatively inexpensive solution to much of the environmental contamination from plastics, glass, and other waste materials. Is it a sound policy to make it mandatory for everybody to recycle? The ...

Question consider two ways of protecting elephants from

Question: Consider two ways of protecting elephants from poachers in African countries. In one approach, the government sets up enormous national parks that have sufficient habitat for elephants to thrive and forbids all ...

Question suppose you want to put a dollar value on the

Question: Suppose you want to put a dollar value on the external costs of carbon emissions from a power plant. What information or data would you obtain to measure the external [not social] cost? The response must be typ ...

Question in the tradeoff between economic output and

Question: In the tradeoff between economic output and environmental protection, what do the combinations on the protection possibility curve represent? The response must be typed, single spaced, must be in times new roma ...

Question consider the case of global environmental problems

Question: Consider the case of global environmental problems that spill across international borders as a prisoner's dilemma of the sort studied in Monopolistic Competition and Oligopoly. Say that there are two countries ...

Question consider two approaches to reducing emissions of

Question: Consider two approaches to reducing emissions of CO2 into the environment from manufacturing industries in the United States. In the first approach, the U.S. government makes it a policy to use only predetermin ...

Question the state of colorado requires oil and gas

Question: The state of Colorado requires oil and gas companies who use fracking techniques to return the land to its original condition after the oil and gas extractions. Table 12.9 shows the total cost and total benefit ...

Question suppose a city releases 16 million gallons of raw

Question: Suppose a city releases 16 million gallons of raw sewage into a nearby lake. Table shows the total costs of cleaning up the sewage to different levels, together with the total benefits of doing so. (Benefits in ...

Question four firms called elm maple oak and cherry produce

Question: Four firms called Elm, Maple, Oak, and Cherry, produce wooden chairs. However, they also produce a great deal of garbage (a mixture of glue, varnish, sandpaper, and wood scraps). The first row of Table 12.6 sho ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As

Follow Us

© Copyright 2013-14 mywordsolution.com All rights reserved