Answered step-by-stepAssume the price of one cubic meter of timber is $1,500 and it...
Assume the price of one cubic meter of timber is $1,500 and it costs $100 to harvest it. Consider a forest where the stock of timber evolves according to
V(t)=10t+t2-.01t3
where t denotes "years after planting." Assume the cost of replanting trees after harvest is
$100,000 and the site value of the land is $1,000,000. The risk-free interest rate equals 3%.
- According to the Wicksell rotation rule should the forest be harvested when t=42? Explain.
- According to the Faustmann rotation rule should the forest be harvested when t=42? Explain.
- In general, how do the Wicksell and Faustmann rule compare to each other?
- Assume now that there are nontimber forest benefits that are valued at $300,000. According to the modified Faustmann rotation rule should the forest be harvested when t=42?
- What could be an unintended consequence, globally, when environmentalistsin the US and Canada advocate for longer harvest periods of forests in the US and Canada?(Regarding question:t0 is to be taken as 42. You are comparing that time to the next period, t1=43, then calculate the volume of timber using the given formula V(t). And then calculate V(t1)-V(t0).
Answer & Explanation
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