You hired a mathematician (who never took a Natural Resource Economics class) to solve a 4 period nonrenewable resource problem assuming a competitive industry and a total resource constraint of 100. He returns an answer to you where per period output levels are increasing and he gets a lambda value: λ = -3.45. From this you conclude: Demand is too high to support the extraction of the resource so the marginal user cost become negative. Competitive firms place no weight on the future and therefore behave like there is no opportunity cost of extracting a resource today. Demand is too low for the constraint of 100 to be binding. Therefore there is no scarcity. The mathematician must have made a mathematical mistake.

You hired a mathematician (who never took a Natural Resource Economics class) to solve a 4 period nonrenewable resource problem assuming a competitive industry and a total resource constraint of 100. He returns an answer to you where per period output levels are increasing and he gets a lambda value: λ = -3.45. From this you conclude: Demand is too high to support the extraction of the resource so the marginal user cost become negative. Competitive firms place no weight on the future and therefore behave like there is no opportunity cost of extracting a resource today. Demand is too low for the constraint of 100 to be binding. Therefore there is no scarcity. The mathematician must have made a mathematical mistake.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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