i want just explanationHow does 8-1Q1= 8-Q2 become Q1+Q2= 10 a)Dynamically efficient allocationNet benefit in present period = Present value of net benefits in period 2.(P-MC) = (P-MC/ 1+r10-Q1 -2 = (10-Q1 -2) /1+08-Q1=8 -Q2..(1)Q1 +Q2 = 10Q1 = 10-Q2 The demand function for a depletable resource is p = 10 – Q while theextraction costs are C = 2Q. There is a fixed supply of 10 units that can beallocated between 2 periods.(a) Assume that the discount rate is zero. What is the dynamically efficientallocation in period 1 and 2?(b) What would be the competitive market allocation?(c) Explain in plain-English terms why the two allocations, in (a) and (b),are different.

Given information Two period economy Demand function P=10-Q C=2Q Fixed supply of resources=10

Answered: i want just explanation How does…

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i want just explanation How does 8-1Q1= 8-Q2 become Q1+Q2= 10

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

i want just explanation

How does 8-1Q1= 8-Q2 become Q1+Q2= 10

a)
Dynamically efficient allocation
Net benefit in present period = Present value of net benefits in period 2.
(P-MC) = (P-MC/ 1+r
10-Q1 -2 = (10-Q1 -2) /1+0
8-Q1=8 -Q2
..(1)
Q1 +Q2 = 10
Q1 = 10-Q2

The demand function for a depletable resource is p = 10 – Q while the
extraction costs are C = 2Q. There is a fixed supply of 10 units that can be
allocated between 2 periods.
(a) Assume that the discount rate is zero. What is the dynamically efficient
allocation in period 1 and 2?
(b) What would be the competitive market allocation?
(c) Explain in plain-English terms why the two allocations, in (a) and (b),
are different.

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2. Christiaan can go hiking, or he can stay at home. Hiking would be fun if nothing bad happens, but there is a risk if he goes hiking that he will meet a bear (not fun) or get bitten by a snake (very not fun). Christiaan decides that if there is a 5% chance of meeting a bear and a 1% chance of getting bitten by a snake, he would prefer to go hiking rather than stay at home. However, if the chance of meeting a bear is 10% and the chance of a snake bite is 5%, he definitely would rather stay at home. then (a) Consider the utility function: U (stay home) = 25, U (hike no event) = 100, U (hike & snake) -1000, U (hike & bear) = -200. Does this utility function represent Christiaan's pref- erences? Explain. (b) Suppose that the utility function in (a) does represent Christiaan's preferences. Would Christiaan prefer to hike or stay home if the probability of meeting a bear is 6% and the probability of being bitten by a snake is 4%? Show your work.
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