As in the numerical example we discussed in our presentations, the inverse demand function for the depletable resource is given by P = 10-0.4qt, where P is the price in dollars and q is the quantity in period t. The marginal cost of extraction is constant at $3. A total of 25 units of the resource is available to be allocated between two periods. Given a discount rate of 10%, answer the following questions: (a) In a dynamically efficient allocation, how much of the resource would be allocated to the first period and how much to the second period? (b) Given this discount rate, what would be the efficient price in the two periods? . First period price Po: 2.685 • Second period price P₁: 2.315 (c) Can you graphically represent the efficient allocation? (d) What would be the marginal user cost in each period? Can you explain the path of the MUC?
As in the numerical example we discussed in our presentations, the inverse demand function for the depletable resource is given by P = 10-0.4qt, where P is the price in dollars and q is the quantity in period t. The marginal cost of extraction is constant at $3. A total of 25 units of the resource is available to be allocated between two periods. Given a discount rate of 10%, answer the following questions: (a) In a dynamically efficient allocation, how much of the resource would be allocated to the first period and how much to the second period? (b) Given this discount rate, what would be the efficient price in the two periods? . First period price Po: 2.685 • Second period price P₁: 2.315 (c) Can you graphically represent the efficient allocation? (d) What would be the marginal user cost in each period? Can you explain the path of the MUC?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:As in the numerical example we discussed in our presentations, the inverse
demand function for the depletable resource is given by P = 10-0.4qt, where
P is the price in dollars and q is the quantity in period t. The marginal cost of
extraction is constant at $3. A total of 25 units of the resource is available to
be allocated between two periods.
Given a discount rate of 10%, answer the following questions:
(a) In a dynamically efficient allocation, how much of the resource would be
allocated to the first period and how much to the second period?
(b) Given this discount rate, what would be the efficient price in the two
periods?
. First period price Po: 2.685
•
Second period price P₁: 2.315
(c) Can you graphically represent the efficient allocation?
(d) What would be the marginal user cost in each period? Can you explain
the path of the MUC?
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