2. (35 points) Consider a development project which will convert forest land for residential housing. Given that the environmental damages (due to loss of preservation) are close to being permanent (at least very long-term), there is significant concern over the loss of preservation benefits. Suppose that the per-period net benefits (total benefits and costs in a given period, not including environmental damages) are given (in NZ$) as follows: NBt = 200, for t = 0, 1, 2, .... ( 4) The development project initially costs around $3000 and the discount rate is set to r = 4%. Using the cost-benefit analysis methods, answer the following questions: (a) (5 points) If we do not take into account any environmental costs, should we un- dertake this project? Explain your reasoning. (b) (10 points) It is estimated that the environmental costs ECt equal: ECt = 40, for t = 0, 1, 2, .... (5) Should we undertake the project, after accounting for the environmental costs? Explain your reasoning. (c) (10 points) Following Krutilla and Fisher Model, suppose that the environmental costs are increasing exponentially over time. More specifically: ECt ECt+1 = 1 - a (6) where 0