1. Suppose a logging company cuts trees from a local wood, but that nearby homeowners use the woods forhunting deer, and that the cutting of trees decreases the amount of deer the homeowners can catch. Demand forthe timber is given by P= 100 – X, and the logging company's (one of many, so market outcome is P = MPC),marginal costs of cutting down the trees is MPC - 4X. Suppose that once we include the damage done to thehomeowners, the marginal social costs are determined to be MSC = X + 10.a. Suppose the logging firm owns the woods and logs all they want. How much do they produce?b. What would be the total value of the damage done to the homeowners in this case?What is the efficient level of production?с.d. What is the maximum amount (total) the homeowners would be willing to pay the logging firm to decreaseproduction to the efficient level.What is the minimum amount (total) the firm would be willing to accept to decrease production to theefficient level?c.f. What will be the marginal payment of the homeowners to reach efficiency?g. What are the net gains to society of reaching the efficient outcome vs the outcome in part 'a'?

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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