Question 4. A researcher is deciding whether or not the environmental quality in a community should be improved from₀= 1to₁= 2at the cost of $7. She used nonmarket valuation methods to estimate the welfare function (or utility function) of a local community, and will compare the welfare gain with the cost to make a recommendation. The welfare function(, )depends on the income level and environmental quality, and the current income level is₀= $10.

4a) [10 points] Suppose the community's welfare (or utility) function is given by(, ) = + . Find the WTP for the environmental improvement (from 1 to 2), and the WTA for forgoing the environmental improvement. With the WTP or WTA numbers, does this project pass the benefit-cost test?

4b) [10 points] Suppose instead the community's welfare (or utility) function is given by(, ) = . Find the WTP for the environmental improvement (from 1 to 2), and the WTA for forgoing the environmental improvement. With the WTP or WTA numbers, does this project pass the benefit-cost test?