Suppose that there is a nonrenewable resource that can be consumed today (period 1) or tomorrow (period 2) and that it has a fixed supply of 5 units. Assume that the inverse demand for the resource in each period is given by: P1 = 25 - 5Q1 P2 = 25 - 5Q2 Moreover, assume that the resource's marginal extraction cost (MEC) is constant in both periods at $5 and that the social discount rate is 25% (i.e., r=0.25). Assuming that the resource is efficiently allocated, what is the consumer surplus in period 1?

Suppose that there is a nonrenewable resource that can be consumed today (period 1) or tomorrow (period 2) and that it has a fixed supply of 5 units. Assume that the inverse demand for the resource in each period is given by: P1 = 25 - 5Q1 P2 = 25 - 5Q2 Moreover, assume that the resource's marginal extraction cost (MEC) is constant in both periods at $5 and that the social discount rate is 25% (i.e., r=0.25). Assuming that the resource is efficiently allocated, what is the consumer surplus in period 1?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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