Background question: Suppose there is a nonrenewable resource with inverse demand function p= 30-0.8q and with marginal extraction costs (MEC)= 8. The resource stock, S is finite and = 35 units. Suppose the time horizon is 2 periods and the discount rate is r= 8%. What quantity should be extracted in each period? What is the optimal price of the resource in the 2 periods? Please answer this!Following Hotelling, we might expect the real price of nonrenewable resources to increase continually over time, as resource stocks are depleted. But empirical evidence for a number of nonrenewable (mineral) resources indicates that their prices over the past century have not been increasing monotonically. Instead the price paths for a number of nonrenewable resources have been “U-shaped”. Provide an explanation for what’s going on. i.e. resolve this apparent anomaly between theory and observation- why would the price of these resources be driven down instead of increasing as the theory predicts?
Background question: Suppose there is a nonrenewable resource with inverse
Please answer this!Following Hotelling, we might expect the real price of nonrenewable resources to increase continually over time, as resource stocks are depleted. But empirical evidence for a number of nonrenewable (mineral) resources indicates that their prices over the past century have not been increasing monotonically. Instead the price paths for a number of nonrenewable resources have been “U-shaped”. Provide an explanation for what’s going on. i.e. resolve this apparent anomaly between theory and observation- why would the price of these resources be driven down instead of increasing as the theory predicts?
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