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 2007. It is now 2014. 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 BCCC's Notso-Isolated rail line. From Notso, SGC will ship the gold to their overseas buyers. They have no alternative transportation substitutes available. 1. Suppose that it costs BCCC $5 per ounce to transport the aold 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, before the mine is made operational. What is SGC's Willingness-to-Pay for transport of gold, as a lump-sum payment? What is BCCC's Willingness-to-Sell, as a lump-sum payment? What is the negotiated payment likely to be? 2. 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? What is the negotiated payment likely to be? 3. Is it likely that SGC will build the airport?

MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
Section: Chapter Questions
Problem 1P
icon
Related questions
Question
!
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 2007. It is now
2014. 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 BCCC's Notso-Isolated rail line. From
Notso, SGC will ship the gold to their
overseas buyers. They have no alternative
transportation substitutes available.
1. Suppose that it costs BCCC $5 per ounce
to transport the aold 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,
before the mine is made operational. What
is SGC's Willingness-to-Pay for transport of
gold, as a lump-sum payment? What is
BCCC's Willingness-to-Sell, as a lump-sum
payment? What is the negotiated payment
likely to be?
2. 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? What is the negotiated
payment likely to be?
3. Is it likely that SGC will build the airport?
Transcribed Image Text: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 2007. It is now 2014. 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 BCCC's Notso-Isolated rail line. From Notso, SGC will ship the gold to their overseas buyers. They have no alternative transportation substitutes available. 1. Suppose that it costs BCCC $5 per ounce to transport the aold 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, before the mine is made operational. What is SGC's Willingness-to-Pay for transport of gold, as a lump-sum payment? What is BCCC's Willingness-to-Sell, as a lump-sum payment? What is the negotiated payment likely to be? 2. 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? What is the negotiated payment likely to be? 3. Is it likely that SGC will build the airport?
Expert Solution
steps

Step by step

Solved in 3 steps

Blurred answer
Recommended textbooks for you
MATLAB: An Introduction with Applications
MATLAB: An Introduction with Applications
Statistics
ISBN:
9781119256830
Author:
Amos Gilat
Publisher:
John Wiley & Sons Inc
Probability and Statistics for Engineering and th…
Probability and Statistics for Engineering and th…
Statistics
ISBN:
9781305251809
Author:
Jay L. Devore
Publisher:
Cengage Learning
Statistics for The Behavioral Sciences (MindTap C…
Statistics for The Behavioral Sciences (MindTap C…
Statistics
ISBN:
9781305504912
Author:
Frederick J Gravetter, Larry B. Wallnau
Publisher:
Cengage Learning
Elementary Statistics: Picturing the World (7th E…
Elementary Statistics: Picturing the World (7th E…
Statistics
ISBN:
9780134683416
Author:
Ron Larson, Betsy Farber
Publisher:
PEARSON
The Basic Practice of Statistics
The Basic Practice of Statistics
Statistics
ISBN:
9781319042578
Author:
David S. Moore, William I. Notz, Michael A. Fligner
Publisher:
W. H. Freeman
Introduction to the Practice of Statistics
Introduction to the Practice of Statistics
Statistics
ISBN:
9781319013387
Author:
David S. Moore, George P. McCabe, Bruce A. Craig
Publisher:
W. H. Freeman