Environmentalists argue convincingly that if oil is drilled


Geologists have found oil in a remote area. It is expected to yield a net profit of $100 at today's prices for five years and then fizzle out. Economists think the real price of oil will rise at 4% per year as far as the eye can see, and that the overall price level will rise by another 3% a year forever. The government has agreed to use 3% of the real discount rate. Environmentalists argue convincingly that if oil is drilled, there is a risk of killing off the last remaining wolves in the area. The wolves are valued at $7 in the initial year and the value grows at 1% a year forever. Should they drill for oil in this area?

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Business Economics: Environmentalists argue convincingly that if oil is drilled
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