here exists 3000 tons of a non-renewable resource (q). Demand is given by P=800−0.25q where P is price. Marginal cost is constant and equal to 200. Assume there are two choices: either to mine the resource today (period 0) or in the next period (period 1). Assume a discount rate of 3%. a.Assume perfect competition (i.e. P=MR) b.Assume now that MC also increases over time. Say to 300 in period 1. What are the answers then? For each question state: How much will be mined in periods 0 and 1, respectively? What is the increase in price in percent between the periods? c.Again assume constant MC=200. What would happen if there was a monopoly instead?
here exists 3000 tons of a non-renewable resource (q). Demand is given by P=800−0.25q where P is price. Marginal cost is constant and equal to 200. Assume there are two choices: either to mine the resource today (period 0) or in the next period (period 1). Assume a discount rate of 3%. a.Assume perfect competition (i.e. P=MR) b.Assume now that MC also increases over time. Say to 300 in period 1. What are the answers then? For each question state: How much will be mined in periods 0 and 1, respectively? What is the increase in price in percent between the periods? c.Again assume constant MC=200. What would happen if there was a monopoly instead?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
There exists 3000 tons of a non-renewable resource (q).
a.Assume
b.Assume now that MC also increases over time. Say to 300 in period 1. What are the answers then?
For each question state:
- How much will be mined in periods 0 and 1, respectively?
- What is the increase in price in percent between the periods?
c.Again assume constant MC=200. What would happen if there was a monopoly instead?
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