Assume the price of one cubic meter of timber is \$1,500 and it...

Question

# Assume 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%.

1.       According to the Wicksell rotation rule should the forest be harvested when t=42? Explain.
2.       According to the Faustmann rotation rule should the forest be harvested when t=42? Explain.
3. In general, how do the Wicksell and Faustmann rule compare to each other?
4.       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?
5.       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).

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