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In April 2010 the BP Deepwater Horizon oil rig suffered a failure in its subsurface blowout preventer leading to an explosion. Eleven workers died and

In April 2010 the BP Deepwater Horizon oil rig suffered a failure in its subsurface blowout preventer leading to an explosion. Eleven workers died and approximately 4.9 million barrels of oil leaked into the Gulf of Mexico. The spill had a substantial impact on nearby coastal areas, including a sharp decrease in the number of visitors to the Gulf coast in the year following the oil spill. The following information describes the average cost of traveling to New Orleans (NOLA) from various regions of the United States along with visit rates before and after the oil spill.

Region

Population

Total Cost of Trip

Visit Rate Before Spill

Visit Rate After Spill

SE

400

$33

0.56

0.14

MW

1,200

$52

0.43

0.11

NE

800

$71

0.29

0.07

In addition, the following equations characterize the relationship between visit rates and total cost:

Before Spill:

rate = 0.79 - 0.007*cost

After Spill:

rate = 0.21 - 0.002* cost

a) How many people visiting NOLA before and after the oil spill?

b) How many people would have visited NOLA before and after the oil spill if the city had charged visitors a flat fee of $10 upon entry?

c) Estimate the cost of the oil spill to New Orleans. Assume linear demand and ignore the 11 fatalities.

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