HW5,Sp2000

# HW5,Sp2000 - EEP101/ECON125 Spring 00 Prof D Zilberman GSIs...

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EEP101/ECON125 Spring 00 Prof.: D. Zilberman GSIs: Malick/McGregor/St-Pierre PROBLEM SET 5 Due Tuesday May 9, 2000 by 5 pm in your TA’s mailbox (2 nd floor Giannini Hall) (Late assignments will not be graded) * NOTE: We have decided to base homework grades on the best four out of five homework scores. However, you are still responsible for knowing this material 1. Suppose r=0.1, price (P) of timber is \$10 per boardfeet, and the volume of trees in a stand obeys the function Q(T) = 12 T 2 - 1/3 T 3 . a) Consider a single rotation. Set up the profit maximization problem and derive the equilibrium condition. Solve for the optimal rotation length (T*). Be sure to check to see if your answer makes sense. b) Consider an infinite series of rotation. Again set up the profit maximization problem and derive the equilibrium condition. (Note that you are not required to solve for T* for this case.) c) In the case of the repeated rotation, will the optimal rotation length increase or decrease when P increases? Why?

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HW5,Sp2000 - EEP101/ECON125 Spring 00 Prof D Zilberman GSIs...

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