3. Lake Charlie has 100 homes located nearby priced at $305,000 each. Lake Danielle has 200 homes nearby priced at $295,000 each. All of the homes near Lake Charlie and Lake Danielle are structurally identical, and Lake Charlie and Danielle are identical except for their water quality levels. Water quality in Lake Charlie is qC = 5, while water quality in Lake Danielle is qD = 3.

a. Based on these data, what would be the estimate of marginal WTP per household to improve lake water quality [$/household/unit of q] from a hedonic property value model?

b. Calculate an estimate of total WTP for a 5% improvement in the water quality level in both lakes.

c. If your estimate of marginal WTP from part a. were used to value a large (non- marginal) change in water quality in one or both of the lakes, would you expect the estimate of total WTP to be accurate, biased up or biased down? Why? (i.e., fully explain your answer.)