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.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter11: Profit Maximization

Section: Chapter Questions

Problem 11.12P

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What is the marginal cost forumla for TC= 10+5Q?
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: 1 = -3.45. From this you conclude: 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. 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 high to support the extraction of the resource so the marginal user cost become negative.
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