1. A firm is extracting a non-renewable resource in a competitive market. The marginal cost of extraction for the firm in all periods is c=$3. a. For each unit of the resource the firm extracts and sells they earn a scarcity rent. Explain in words what the scarcity rent represents. b. We observe that the real market price for the extracted resource in period t is $4. What is the scarcity rent earned by the firm in period t? c. We also observe that the real market price for the extracted resource in period t+1 is $4.25. What is the scarcity rent earned by the firm in period t +1.

1. A firm is extracting a non-renewable resource in a competitive market. The marginal cost of extraction for the firm in all periods is c=$3. a. For each unit of the resource the firm extracts and sells they earn a scarcity rent. Explain in words what the scarcity rent represents. b. We observe that the real market price for the extracted resource in period t is $4. What is the scarcity rent earned by the firm in period t? c. We also observe that the real market price for the extracted resource in period t+1 is $4.25. What is the scarcity rent earned by the firm in period t +1.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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