9 At any time, the size of a tree is 0, 1, 2, or 3. We must decide when to harvest the tree. Each year, it costs $1 to maintain the tree. It costs $5 to harvest a tree. The sales price for a tree of each size is as follows:

The transition probability matrix for the size of the tree is as follows:
0 1 2 3

For example, 80% of all size 0 trees begin the next year as size 0 trees, and 20% of all size 0 trees begin the next year as size 1 trees. Assuming the discount factor for cash flows is .9 per year, determine an optimal harvesting strategy.

Transcribed Image Text:

Tree Size Sales Price 0 $20 1 $30 23 2 $45 $49