Econ 308 Midterm (Average Revenue) (Marginal Revenue) 1.) a.) # Of Operations | Total Harvest | Average Harvest | Marginal Harvest | Marginal Profit 0 0 0 0 0 1 40 40 40 15 2 75 37.5 35 10 3 105 35 30 5 4 130 32.5 25 0 5 150 30 20 -5 6 165 27.5 15 -10 7 175 25 10 -15 8 180 22.5 5 -20 9 182 20.22 3 -22

b.) To figure out the number of logging operations that maximizes the total profits in the logging industry, the number of operations in a stretch of rainforest should be operating up to a set point where the value of the addition to the total harvest exceeds the opportunity cost of a logging operation. The number of operations should stop at four since the fifth operation would bring in $20,000 in marginal revenue, which is less than enough to cover the costs of $25,000 per week. With that being said, four operations would maximize total profits in the industry. When we add up the difference between marginal revenue and marginal profit for the first four boats, the resource rent is $30,000 per day.
c.) If profit-maximization is the only guiding principle to enter the logging industry, there will be a constant stream of newcomers looking for a profit and taking advantage of the open access but this then results in a huge problem. “If people weigh private benefits against private costs --- as opposed to private plus external, or ‘social’ costs --- they will overexploit common resources when given open access.” (Goodstein, pg. 36) Each logger enters the industry with only worrying about the private benefit of making a profit and the private cost of $25,000 per week. In the