Application 1: Open Access and Logging The following data refers to the number o
ID: 1102245 • Letter: A
Question
Application 1: Open Access and Logging
The following data refers to the number of logging operations working in a stretch of tropical rainforest. Excluding externalities, the private cost of a logging operation is $25 thousand per week and logs sell for $1 a piece.
Fill in the chart below.
# of operations
Total Harvest (1000 logs)
Average Harvest (1000 logs)
Marginal Harvest (1000 logs)
0
0
-
-
1
40
2
75
3
105
4
130
5
150
6
165
7
175
8
180
9
182
Now answer the following questions
1. What is the number of logging operations in the forest that maximizes total profits in the industry (ignoring externalities)? How much total resource rent is generated at this level of harvest? (hint: maximum profit occurs where marginal private cost equals marginal private benefit; rent is the difference between total revenue/benefit and total cost).
2. With open access to the forest, how many operations will wind up logging? With open access, will there be any resource rent earned by the loggers? (hint: under open access loggers consider the average revenue/benefit).
3. Suppose the externalities (e.g. loss of genetic material for medical/agricultural applications; release of carbon-dioxide stored in the
# of operations
Total Harvest (1000 logs)
Average Harvest (1000 logs)
Marginal Harvest (1000 logs)
0
0
-
-
1
40
2
75
3
105
4
130
5
150
6
165
7
175
8
180
9
182
Explanation / Answer
Look at problem 1, it has answer following the question
http://sites.middlebury.edu/ec265/files/2011/10/EC265-%E2%80%93-Fall-2011-Answers-to-PS1.pdf
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