Question

Question 4 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. Suppose your discount rate is 30%, how many passes will you save until next year? [Hint: You are trying to maximize the present value of the total willingness to pay.] 0 10 0 6 0 5 4 O 3 O 2 0 1

Answer 1

The willingness to pay (WTP) value is same in first year and second year. Total number of Lift passes to Big White =10

The WTP value = $100 that declines to $10 after each 10th day.

Therefore, the Total WTP value at the end of 100 days = $100+$90+$80+$70+$60+$50+$40+$30+$20+$10= $550

The discount rate =30% Therefore, actual Total WTP value = $550*.70= $385, which is maximum value of total willingness to pay.

In 100 days of present or next year, the consumer will visit Big white 10 times and use all 10 lift passes. Therefore, the number of lift passes left at the end of second year = 0

The correct option is 0.