The following data refer to the number of logging operations working in a stretch of tropical rain forest. Excluding externalities, the private cost of a logging operation is $25,000 per week. Logs sell for $1 a piece. Fill in the chart below.

a. What is the number of logging operations in the forest that maximizes total profits in the industry (ignoring externalities)? How much total resource rent is generated at this level of harvest?

b. With open access to the forest, how many folks will wind up logging? With open access, will there be any resource rent earned by the loggers?

c. Which of the following are externalities associated with logging?
_____________  Loss of genetic material for medical or agricultural applications _____________   Low wages for forestry workers _____________  Release of carbon dioxide stored in the “carbon sink” of the forest _____________  -Building of roads by the companies to access timber

d. Suppose the total externalities associated with deforestation could be valued at $10,000 per operation. What is the efficient number of operators? What is the open access number of operators?

e. Suppose access to the forest is controlled by a (perfectly enforced) fee system.
What (weekly) fee would have to be charged to ensure an efficient harvest level?

Transcribed Image Text:

Number of Operations 5767SAWN10 2 3 4 8 9 Total Harvest (1,000 logs) 0 40 75 105 130 150 165 175 180 182 Average Harvest (1,000 logs) Marginal Harvest (1,000 logs)