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Suppose the total product, marginal product and average product from grazing cattle in Tonto National Forest are: T P = 400Q - 4Q 2 MP = 400 - 8Q AP = 400 - 4Q Further, suppose that the marginal cost of catching a fish is MC = 12Q, where Q is the number of cattle in the forest.
(a) If the Forest Service wants to maximize the welfare of ranchers, how many cattle should they allow in the forest?
(b) How many cattle will be grazed if the Forest Service places no restrictions on grazing?
(c) Suppose the Forest Service caps the number of cows at 100. What is the welfare gain relative to having no restrictions?
(d) Now suppose the Forest Service is operating on a 2-year planning horizon and so must decide how many cattle to allow both this year and next year. If the Forest Service uses a discount rate of 10%, how many cattle should they allow this year?
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