Mining is proposed for Wonderful Wilderness. This area provides two benefits: recreation (it is known for its remarkable backpacking opportunities) and biodiversity (it is a unique habitat for endangered wildlife and plants). The mining is expected to reduce backpacking visits from its current level of 10,000 recreation visitor-days (RVDs, a measure of recreational use) per year to 4000 RVDs/year for the next 10 years; after that time, recreational use would partially rebound to 7000 RVDs/year into perpetuity. If the mine is not opened, recreational use is expected to continue at current levels into perpetuity. Mining is expected to bring profits of $1 million/year for the 10 years of the mining operation.
(a) What is the present value of mining in the area (excluding effects on recreation) if the interest rate is 6 percent? If it is 3 percent?
(b) If one RVD of backpacking is worth $P, what is the present value of recreation in the area if it is mined? If it is not mined? Again, do the calculation using both a 6 percent and a 3 percent discount rate.
(c) How much would an RVD of backpacking have to be worth (i.e., what is P) to make the benefits of mining worth less than the benefits of not mining, considering only the benefits and costs of mining and recreation, not biodiversity? Do the calculation for both 6 percent and at 3 percent.