Question 5 -The Commons and Logging The following data refers to the number of loggers working in a stretch of tropical rainforest. The cost of Logging is $25,000 a week. Logs sell for $1 a piece. Fill in the chart below. Number of Loggers Total Harvest (1000 logs) Average Harvest (1000 logs) Marginal Harvest (1000 logs) 40 | 75 | 105 130 150 165 175 180 182 9 (a) How many loggers if they try to maximize industry profits? What are going to be their revenues, costs and profits? (b) With open access to the forest, how many loggers will enter the market? What are going to be their revenues and profits? (c) Compare loggers' profits in point (a) and (b) and discuss why you obtain that result. (d) Suppose that each logger creates a negative externality that is valued at $10,000 per week. What would be the socially efficient number of loggers? What is the open access number of loggers? Compare your result to point (a) and (b). (e) What weekly access fee should be charged to replicate the socially optimal result of point (d)? (Hint: the answer is going to be a range. You need to find a fee that is high enough to discourage the marginal logger from entering the market, but not that high to discourage a socially efficient number of loggers.] Question 5 -The Commons and Logging The following data refers to the number of loggers working in a stretch of tropical rainforest. The cost of Logging is $25,000 a week. Logs sell for $1 a piece. Fill in the chart below. Number of Loggers Total Harvest (1000 logs) Average Harvest (1000 logs) Marginal Harvest (1000 logs) 40 | 75 | 105 130 150 165 175 180 182 9 (a) How many loggers if they try to maximize industry profits? What are going to be their revenues, costs and profits? (b) With open access to the forest, how many loggers will enter the market? What are going to be their revenues and profits? (c) Compare loggers' profits in point (a) and (b) and discuss why you obtain that result. (d) Suppose that each logger creates a negative externality that is valued at $10,000 per week. What would be the socially efficient number of loggers? What is the open access number of loggers? Compare your result to point (a) and (b). (e) What weekly access fee should be charged to replicate the socially optimal result of point (d)? (Hint: the answer is going to be a range. You need to find a fee that is high enough to discourage the marginal logger from entering the market, but not that high to discourage a socially efficient number of loggers.]
