Question
Use EXCEL to solve this problem. 5. [15 pts] Consider a private landowning firm that is determining the optimal rotation period for its homogeneous
Use EXCEL to solve this problem. 5. [15 pts] Consider a private landowning firm that is determining the optimal rotation period for its homogeneous forest of 10,000 acres. Assume that the biology of the trees is as follows: Q(t) = exp(a-b/t) for each acre and timber can be sold at a constant price P. Planting and regeneration costs are fixed at c, and the firm discounts the future at 5%. First assume a=12.96, b=196.11, c= 180, and P=0.65 NOK. e. Graph the total volume of wood Q against tree age (t) on one graph, and At the corresponding current annual increment (- -) and mean annual increment Oon another graph. Explain the significance of the intersection point. f. Using an optimal rotation model, show that welfare is not maximized at MSY, and suggest the optimal alternative rotation period. g. Suppose the price of timber increased to 10 NOK. What happens to the optimal rotation period? Explain in terms of marginal benefits and marginal costs.
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