hw3_neil_solution

hw3_neil_solution - Homework #3 Environmental Economics Due...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Homework #3 Due 4/21/2010 Environmental Economics This homework focuses on natural resource economics. You can answer these questions using calculus, or plug in values to find the solution using Microsoft Excel (or Matlab) Hint #1: The Present Discounted Value (PDV) of a payoff of $X in two years = X/(1+r) 2 where r is the market rate of interest. Hint #2: Expected Present Discounted Value = probability that a payout takes place*PDV The Setup: You own one tree. Its height measured in feet is a function of the tree’s age measured in years. Here is the production function. Feet = * 44 Age Assume that the real price per foot of wood always equals $30. Suppose that the cost of cutting down your tree is $20 (note: not per foot, this is a fixed cost). Assume the interest rate always equals 8%. 1. If your goal is to maximize the present discounted value of your profits, what age will you cut this tree down? Profit=revenue – cost
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/12/2010 for the course ECON M134 taught by Professor Bresnock during the Spring '08 term at UCLA.

Page1 / 3

hw3_neil_solution - Homework #3 Environmental Economics Due...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online