10. A company owns a stockpile of uranium ore and has hired you to help determine how much of the ore to sell across two time periods, which for simplicity we'll assume are now and exactly ten years from now. The company makes dynamic allocation decisions based on a market interest rate of 4% , and asks you to use this in your analysis. Information about the per-unit price (P) of the resource in the two periods, marginal extraction costs (MC), and the amount of uranium ore (Q) to allocate are given below. Period 1 (now): P,-10, MC,-0.1Q, Period 2 (10 years from now): Pa-15, MC2-0.2Q2 Stock of resource: Q-100 (A) Determine (numerically) how the uranium should be optimally allocated over the two periods. (B) Define marginal user cost What is marginal user cost for the allocation you determined above? (C) Without undertaking additional numerical calculations, would an increase in the interest rate lead to more or less extraction in the first period? Explain.

10. A company owns a stockpile of uranium ore and has hired you to help determine how much of the ore to sell across two time periods, which for simplicity we'll assume are now and exactly ten years from now. The company makes dynamic allocation decisions based on a market interest rate of 4% , and asks you to use this in your analysis. Information about the per-unit price (P) of the resource in the two periods, marginal extraction costs (MC), and the amount of uranium ore (Q) to allocate are given below. Period 1 (now): P,-10, MC,-0.1Q, Period 2 (10 years from now): Pa-15, MC2-0.2Q2 Stock of resource: Q-100 (A) Determine (numerically) how the uranium should be optimally allocated over the two periods. (B) Define marginal user cost What is marginal user cost for the allocation you determined above? (C) Without undertaking additional numerical calculations, would an increase in the interest rate lead to more or less extraction in the first period? Explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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