Assume x hectares (ha) of tropical rainforest is being converted into farmland. The conversion cost is represented
Question:
Assume x hectares (ha) of tropical rainforest is being converted into farmland.
The conversion cost is represented by the function 2 × 2 + 2x. Also assume that the market price of farmland is ¥p/ha, and the demand function for farmland is x = 7 − 0. 5p.
a. Determine the agricultural land conversion area and market price at market equilibrium.
b. Assume damages amounting to ¥6x are incurred when x ha of tropical forest are lost to agricultural conversion. Determine the socially optimal farmland conversion area that includes the impact of tropical rainforest losses under such circumstances.
c. Calculate the deadweight loss.
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