Long question: Backstop technologies. The US follows the Hotelling rule in their decision to extract natural gas, which is exclusively used to generate electricity. In year one, the marginal extraction cost of natural gas is $2 per barrel while its price is $3.90. In year 2, the marginal extraction cost of natural gas will be $2 while the price of natural gas will be $4.1.
Long question: Backstop technologies. The US follows the Hotelling rule in their decision to extract natural gas, which is exclusively used to generate electricity. In year one, the marginal extraction cost of natural gas is $2 per barrel while its price is $3.90. In year 2, the marginal extraction cost of natural gas will be $2 while the price of natural gas will be $4.1.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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a) What is the interest rate in the US?
b) If in year two wind farms in Wisconsin provide one TWh of electricity for $4, what is the total amount of natural gas that can be extracted to generate electricity?
Please show your work. All help is appreciated, thank you.
Transcribed Image Text:Long question: Backstop technologies.
The US follows the Hotelling rule in their decision to extract natural gas, which is exclusively used to
generate electricity. In year one, the marginal extraction cost of natural gas is $2 per barrel while its price is
$3.90. In year 2, the marginal extraction cost of natural gas will be $2 while the price of natural gas will be
$4.1.
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