MGMT, IBUS

Week 4 Assignment: Economics of Sustainable Well Management in Orust

Assignment Due Date and Time

Purpose

The purpose of this assignment is to practice researching the economics of sustainable practices and using Excel as a calculation tool. (Use the Excel that is provided)

Description

Farmers in an arid region of Orust draw their irrigation water from an underground aquifer. The aquifer has a natural maximum recharge rate of 320,000 gallons per day (i.e., 320,000 gallons per day filter into the underground reservoir from natural sources). The total product schedule for well operations looks like this:

Number of Wells	10	20	30	40	50	60	70	80	90
Total Water Output (thousand gallons/day)	100	220	310	370	410	420	420	400	370

The cost of operating a well is 900 crowns per day; the value of water to the farmer is 0.1 crown per gallon.

(Apply about three to four well written sentences for the writing part)

(So one page for writing part)

Questions

A. Adding a new row to the table above called “total revenue,” what is the total revenue for each number of wells?

B. If each well is privately owned by a different farmer without any regulations, how many wells will operate? Briefly describe why this number of wells is not economically efficient. Also, is this number of wells likely to be ecologically sustainable in the long-term? Why or why not?

C. What would be the economically efficient number of wells? Explain why social benefits (profits) are maximized at this level of output.

D. Describe one policy that could be implemented in Orust to achieve the socially efficient equilibrium. Also, is the socially efficient equilibrium likely to be ecologically sustainable?

E. Suppose a new technology is adopted that reduces the cost of operating a well from 900 to 600 crowns. Now how many wells (to the nearest multiple of 10) will operate without any regulation?

F. What is the socially efficient (i.e., profit maximizing) number of wells with the new technology? How has the introduction of this new technology affected environmental sustainability in Orust? Would you recommend any additional regulation after the introduction of the new technology?

Hints

· For calculations in Questions A, B and C: Use the Excel worksheet provided in the folder on uLearn. You need to enter in values and formulas in order to do the necessary calculations. Refer to Chapter 4 in your textbook regarding how to make the necessary calculations needed to answer the questions.

· Hints for A:

· Total Revenue = Total Water Output x Operating Cost.

· You need to adjust water output to gallons/day first.

· Hints for B:

· Without regulations: to calculate this, you will need to calculate average revenue for each number of wells.

· Solve to the nearest multiple of 10 wells.

· Hints for C:

· The economically efficient number of wells: to calculate this, you will need to calculate marginal revenue, best shown between two levels of output.

· Solve to the nearest multiple of 10 wells.

· For written responses to Questions B, C, D, E and F: Your answers to each question should be 1-2 paragraphs long (5-8 sentences). Be sure to include relevant concepts discussed during the course. The written responses can be submitted as a MS Word document or included in the Excel spreadsheet.

Grading Criteria

This assignment is graded out of 100 points.

College of Online Education IBUS4055