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Unformatted text preview: Section 101/102 EEP C101/ECON C125 April 4, 2011 GSI: Anna Spurlock Today: Pesticides Modeling Pest Control Choices Z = Input (fertilizer) X = Pesticide (damage-control agent) N = final pest population M = Initial pest population N = h ( X,M ) d ( N ) = fraction of potential output damaged Q = g ( Z ) = Potential output Y = g ( Z ) · (1- d ( h ( X,M )) Actual output P = Output price W = Input price V = Pesticide price A = Fixed application cost Π( X,Z ) = P · Y- W · Z- V · X- A = P · g ( Z ) · (1- d ( N ))- W · Z- V · X- A where N = h ( X,M ) Firm’s Decision: NOTE: there is a fixed cost of choosing to use pesticides ( A ). Therefore the firm has to decide first whether or not to use pesticides at all, and then how much to use if they decide to use pesticides. Therefore the decision of the firm is much like the decision of the firm we did in the technology adoption case. Therefore the firm’s optimization problem has two steps, first they maximize their profit if they were to use pesticides, second they maximize their profit if they...
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- Spring '11
- Environmental Economics, Farmer, Pesticide