A company logs old-growth forest and faces a constant price of P = 100 for the timber that it harvests per hectare of land. The marginal private cost of logging is MC = Q where Q is the hectares of land harvested by the firm (the marginal costs increase because the company has to log further away from roads and on steeper mountain slopes).

For the remainder of the questions, consider that logging also causes a loss of recreational benefits and greenhouse gas emissions. The marginal cost of greenhouse gases from logging is given by MCG=10 and the marginal losses of recreational benefits are given by MCR = 0.5Q.

a) Without any regulation, how many hectares would the company log?

b) What is the socially optimal level of logging?

c)What are the net benefits of unregulated logging (net befits are revenues i.e. price times quantity minus the social costs of logging)?

d) What are the net benefits of the social optimal logging level?

e)What is the efficiency gain from moving from the unregulated market outcome to the socially optimal level of logging?

f) Assume you are tasked by the government to find the socially optimal level of logging. How would you quantify the different costs and benefits of logging? Which methods would you use?