Question: 2. Supposed that consumer willingness to pay for timber is constant over time, and can be represented by the following demand function: Q =

2. Supposed that consumer willingness to pay for timber is constant over time, and can be represented by the following demand function: Q =

2. Supposed that consumer willingness to pay for timber is constant over time, and can be represented by the following demand function: Q = 3000-20P, where P is the price per tonne of timber (in dollars) and Q is the quantity of timber (in tonnes). The marginal cost of harvesting timber is also stable over time, and can be represented as MC = 50, in dollars per tonne. Net benefits of timber harvest are calculated at the end of each year. (32 marks) a) Graph the inverse demand and marginal cost curves for timber. (14 marks) b) Determine the annual optimal amount of timber harvest. (8 marks) c) Calculate the sum of present values of net benefits from timber harvest within three years (n=0, n=1, and n=2), using a 4% discount rate. Please indicate the area of net benefit in the figure. (10 marks)

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