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Homework answers / question archive / Aregon State University AEC351 Final Exam 1) (6 points) Suppose a competitive market for agricultural production of soybeans has 100 identical firms, each with marginal cost given by MC(qi) = 23+

Aregon State University AEC351 Final Exam

1) (6 points) Suppose a competitive market for agricultural production of soybeans has 100 identical firms, each with marginal cost given by *MC*(*q _{i}*) = 23+

(circle only one response)

(E) None of the above

2.

(6 points) Fill in the blanks in the following section from Weber and Chen (2012) by choosing the ordered list of words and/or phrases that complete the passage.

The preservation of natural forest capital through the NWFP ultimately has induced a —(i)— of the forest-related benefits of Federal forestland across communities. Historically, the major benefits came from the timber production which went mainly to the timber-dependent communities. The implementation of the NWFP, signaling that the federal government wanted to protect —(ii)— forestland, appears to have promoted community wealth in communities close to the protected land, and to have redistributed the economic benefits from the timber-dependent communities to a —(iii)— set of NWFP-adjacent communities.

(circle only one response- i.e. one row)

- i: redistribution ii: clear-cut iii: smaller
- i: redistribution ii: old-growth iii: broader
- i: slow-down ii: endangered iii: newer
- i: regime shift ii: ecosystem service iii: smaller
- i: jump-start ii: old-growth iii: growing
- i: reorganization ii: scenic iii: broader

3.

(6 points) Following the definitions from the Field (2016) textbook, if *S _{t }*is a renewable resource stock measured in a particular period

*S**t*+1 = *S**t *− *Q**t *+?*S**t*

(circle one answer)

(A) |
True |

(B) |
False |

(C) |
Uncertain |

4.

(6 points) In a two-period nonrenewable resource extraction problem with variable marginal cost of extraction *MC*(*q _{t}*) =

(circle one answer)

(A) |
True |

(B) |
False |

(C) |
Uncertain |

5.

(15 points) Consider a market structure where there is only one producer of steel. This firm acts as a profit-maximizing monopolist. Assume that the monopolist’s marginal cost curve is *MC*(*Q*) = 100+2*Q*, where *Q *is measured in thousands of pounds. Market inverse demand for steel is given by *P ^{D}*(

- What is the equilibrium quantity of steel sold by the monopolist, and what is the price per pound?
- Now suppose that the producer acts as a firm in a competitive industry.

What is the competitive equilibrium quantity and price?

6.

(15 Suppose that the growth rate of the sablefish (Anoplopoma fimbria) stock in the Central Gulf of Alaska fits a logistic function, with parameter values listed in Table 1 below.

Calculate the following potential equilibrium effort levels:

- The effort level (in fishing trips per year) that corresponds to maximum sustainable yield ( MSY ).

(HINT: Solve for stock X and yield Y, then use those to solve for effort E) - The economically efficient (sole-owner) level of effort.

- The open access effort level.

Depict your solutions on a graph that shows total revenue and total cost in this fishery (effort should be shown on the horizontal axis, and dollars should be shown on the vertical axis). The next page is left blank for extra room to work. 7 7.

(15 The owner of one acre of ponderosa pine (Pinus ponderosa) needs to plan a forest rotation length. Unless the owner chooses to sell the forest land, it will be kept in forestry and the chosen rotation will be maintained indefinitely. Assume that the stumpage price is *p *= $4.00 per cubic feet and the fixed cost of harvest is *C *= $3,800.00. The volume (in cubic feet) of the stand at any point in time is given by *W*(*t*) = *at *− *bt*^{2 }= 160*t *− 0*.*5*t*^{2}, where *t *is measured in years. Assume that the forest owner uses an annual discount rate of *r *= 0*.*01 and that the present value of bare land is S = $15,000 per acre.

- Write down a condition the forest owner may use to choose a rotation length that maximizes the net present value of profits from timber harvest. In a few sentences, interpret the condition.
- What is the forest owner’s efficient rotation length, rounded to the nearest year? Show your work, and plot your solution using a figure.

8.

(6 points) A firm is considering purchasing a iron mine. The most profitable strategy for the mine owner would be to extract all of the iron at once five years from now, yielding profits of $20 million with certainty. The price of the mine is $15 million. Assume that the annual discount rate is 4%. Based on this information, should the firm purchase the cobalt mine? (circle only one response)

- Yes
- No
- Uncertain

9.

(10 points) When an economist states that renewable resources are special because they have the potential to generate sustainable wealth indefinitely, what does this person mean?

Using complete sentences, translate this statement into an explanation that someone who has not taken a natural economics course can understand. When doing so, take care to be clear and precise about what the terms "renewable", "sustainable" and "wealth" mean to the economist in this context.

10.

(15 Consider the problem of a mining firm over two periods (0 and 1). The firm has access to X = 40 units of a mineral resource and must set extraction levels in each period (*q*_{0 }and *q*_{1}), respectively). The firm knows that the per-unit price is *P*_{0 }= 25 in period 0 and correctly anticipates that the price is *P*_{1 }= 50 in period 1. The firm’s marginal cost of extraction is *MC*(*q _{t}*) = 5+

- What is the firm’s profit (total rent) maximizing extraction plan assuming it applies a discount rate (
*r*= .1) ? - What are the resource rents the firm earns under the extraction plan you found in part a?

EXTRA CREDIT

Which of the following topics were NOT covered in AEC 351 course content this term?

- 1, 6, 8, and 9
- 5, 6, and 8
- 2, 5, 6, 8, and 10
- 4, 5, and 8
- 5, 6, 8, and 10
- 5 and 6
- All of these topics were covered

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