Present value of all future net benefits

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Reference no: EM131098371

Let V0 = the value of wood harvested this year; V1 = the value of wood harvested next year; ΔV = V1 - V0; C = harvest costs; r = the discount rate; S = the present value of all future net benefits when forest is harvested respecting an optimal rotation period; and t = the time period. We know that ΔV = (V0 – C) r + Sr describes the decision to cut wood now versus next year. a. Provide a graphical illustration of this model, show and discuss when it is socially optimal to wait to harvest timber, when it is optimal to harvest timber, and when it is past the optimal timber harvesting time period. b. Indicate the effect of an increase in each of the model variables on the socially optimal timing (e.g. earlier, later or ambiguous) of timber harvest

Reference no: EM131098371

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