Question

Question5 10 pts Suppose you have 10 lift passes to Big White that you can use either this year or next, and that you will only be able to take ten trips this year and next. Let your WTP for a day of skiing at Big White this year be $100 for the first year, $90 for the second, declining to $10 for the tenth day of skiing, and let your WTP be the same next year. Above which discount rate will all the tickets be used this year. 0 100096 o 900% o 800% О 700% 55% О 500% 400% o 300% o 200% 0 100% 00%

Answer 1

Demand function is P1 = 110 - 10Q1 for first year and for the second year demand is P2 = 110 - 10Q2. The present value of marginal net benefit should be equal in both years where Q1 + Q2 = 10. Then we have

110 - 10Q1 = (110 - 10Q2)/(1 + r)

Now Q1 = 10 and Q2 = 0. This implies we have

110 - 10*10 = 110/(1 + r)

10(1 + r) = 110

10r = 100

r = 10 or 1000%.

Hence the required percentage is 1000%.