Two-period model. There is a fixed supply of certain depletable resource. Suppose that: (40 points) • Total supply of the depletable resource is 30 units. • Demand curve is: P=9-0.3Q. • Marginal cost is constant: MC = $3. • Discount rate r = 0.2 (1) Calculate the dynamic efficient allocations for each period, (P1*, Q1*), (P2*, Q2*) that maximizes present value. (8 points) (2) Calculate the present value of each period, PV1 * and PV2 * , * , and then show them on the graph. (6 points) (3) Calculate the net benefit for each period, NB1 * and NB2 * . (6 points) (4) Calculate the marginal user cost for each period, MUC1 and MUC2. (6 points) (5) Consider the present value of a particular allocation —15 units in the first period and 15 units in the second. What is the present value in this case? (6 points) (6) Calculate deadweight loss in equal allocation. (2 points) (7) Based on your answer from question (5), does this efficient allocation satisfy sustainability criteria? If yes, explain why. If not, what is the required degree of sharing in order to reach weak sustainability?

Two-period model. There is a fixed supply of certain depletable resource. Suppose that: (40 points) • Total supply of the depletable resource is 30 units. • Demand curve is: P=9-0.3Q. • Marginal cost is constant: MC = $3. • Discount rate r = 0.2 (1) Calculate the dynamic efficient allocations for each period, (P1, Q1), (P2, Q2) that maximizes present value. (8 points) (2) Calculate the present value of each period, PV1 * and PV2 * , * , and then show them on the graph. (6 points) (3) Calculate the net benefit for each period, NB1 * and NB2 * . (6 points) (4) Calculate the marginal user cost for each period, MUC1 and MUC2. (6 points) (5) Consider the present value of a particular allocation —15 units in the first period and 15 units in the second. What is the present value in this case? (6 points) (6) Calculate deadweight loss in equal allocation. (2 points) (7) Based on your answer from question (5), does this efficient allocation satisfy sustainability criteria? If yes, explain why. If not, what is the required degree of sharing in order to reach weak sustainability?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

ChapterB: Differential Calculus Techniques In Management

Section: Chapter Questions

Problem 8E

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