CE 5480 -Water Resources Planning & Management

Assignment No. 2
Date 29.03.2016
Expected date of submission 13/04/2016
Late submission will attract severe penalty.

Short Questions

1. Express the marginal rate of substitution as the slope of an indifference curve.

2. The consumers budget is allocated so that the marginal utility per unit of money spent is
equal for each good what does this imply?
3. When is the indifference curve tangential to the budget line?
4. Illustrate the concept of opportunity cost, production efficiency using a production-
possibility frontier (PPF).
5. When is a linear PPF produced?
6. When does the PPF shift to the right? What does this imply?
7. What does an isoquant show or illustrate?
8. Comment on the possible shapes of an isoquant.
9. Explain the concept of willingness to pay with regard to a privatized municipal water
supply system.
10. What do you understand by consumer surplus? Illustrate the same through a practical
example.
11. How do you construct a typical market demand curve?
12. Discuss briefly the implications of shifting of the supply and the demand curves.

Problems:

1. A certain project has a first cost of Rs.10 million & an annual maintenance cost of Rs.
500000 over a 50 years life. Benefits received from the project increase linearly from
Rs.400000 for the 1st year to Rs.4 million at the end of 25 years and remains constant
thereafter till 50 years. Find out the benefit to cost ratio assuming 5% discount rate. What is
the internal rate of return for the project?

2. A water project is proposed to supply water for municipal and irrigation uses. Municipal
demand is given by P + 2Y = 12, and irrigation demand is given by 2P + Y = 24, where P is
the price and Y is the demand
(i) Determine the aggregate demand curve.
(ii) Assuming the total cost curve is given by C = 0.5 Y2, determine the optimal level of Y.
(iii) Determine the share of municipal and irrigation supplies at optimal level of Y.

3. Three alternative plans for expanding a municipal water distribution system will each meet
demands for water and maintain required pressures. Each plan has a project life of 30 years.
The initial investment cost and annual operation and maintenance cost for each plan are as
follows:
 Select the economically optimum plan based on a discount rate of 8 percent based on: i)
present worth method and ii) annual worth method.

4. An irrigation system is to be installed for a public golf course. Each of three alternative
designs consists of pipes and a pump. The piping system is expected to last 30 years, with
zero salvage value. The pumps are expected to last 10 years and have zero salvage value.
Replacement pumps of the same design and cost will be used to extend the operation to 30
years. Cost estimates for the three alternative system designs are provided below.

The optimum alternative depends on the amount of water pumped each year to irrigate the
golf course. Determine the range in the amount of water pumped for which each alternative
would be economically optimum based on discount rate of 8 percent.

5. Estimates of project costs and residual flood damages for six flood damage reduction plans
are as follows:

Determine the benefit-to-cost ratio and net benefits for each plan for a 100-year period of
analysis and discount rate of 8 percent. From an economic perspective, which is the best plan
(use the incremental benefit-cost method)?
6. The supply and demand schedules for a particular commodity are:
Price (Rs.) 10 20 30 40 50 60 70
Demand (kg) 41 30 21 14 9 6 5
Supply (kg) 12 14 18 24 32 42 55
a) Plot the supply and demand curves and find the equilibrium market price
b) At what price does the elasticity reach a value of 1?
c) What equilibrium price would result from a doubling of demand with the same supply?

7. Lines of consumer indifference between commodities A and B are represented by the

indifference map represented by the equation 0.1A2B = V, where V is a scalar measure of
satisfaction.
a) Construct an indifference map covering the region A < 10, B <50.
b) What level of satisfaction is gained at the point A = 7, B = 25? What is the marginal rate
of substitution, dA/dB at this point?
c) A consumer has an income of 20 to spend in a market where PA = 2 and PB = 0.5. Plot the
line of attainable combinations. What is the maximum level of satisfaction the consumer
can reach? What amounts of A and B does he purchase to obtain the satisfaction?