Question

Create a graph describing a hypothetical relationship between Timber values (H) and Biodiversity values (E) in order to establish the optimal number of clear cut timber plots (n) within a forest when the objective is to maximize the economic returns to both timber and biodiversity. (10 points) b. Please tell the story of this graph. Identify and provide the economic intuition for the optimal number plots when managing for 1) wood, 2) biodiversity and 3) both. (10 points)

Answer 1

(a) Create a graph describing a hypothetical relationship between Timber values (H) and Biodiversity values (E) in order to establish the optimal number of clear cut timber plots (n) within a forest when the objective is to maximize the economic returns to both timber and biodiversity.

(b). Please tell the story of this graph -

• The story behind the graph in the picture is to ascertain the most efficient combination of timber ad biodiversity in order to maintain sustainable development. This could be obtained through the idea of "Production possibility frontier" (PPF) graph/curve which shows the maximum possible combination of output when two goods/services of the economy are fully utilized/employed.
• A PPF curve is used to illustrate economic returns, opportunity cost, and trade-offs. With diminishing returns biodiversity value diminishes as more timber is being obtained from the environment and vice versa.
• Points within the curve show that the resources are not fully utilized, on the other hand, points outside or beyond the PPF curve show that the efficient combination is not attainable.
• Similarly, in graph A, B, C are efficient output combination, and F is unattainable combination and D, E is an inefficient combination where resources are not fully utilized.

b. Identify and provide the economic intuition for the optimal number of plots when managing for 1) wood, 2) biodiversity and 3) both.

All the values in the graph and table below are assumptions according to suitability.

With diminishing returns biodiversity value diminishes as more timber is being obtained from the environment and vice versa.

	Optimal number (wood)	optimal number (biodiversity)
Wood	200	300
Biodiversity	80	480
Both	160	400