Assume again that we have a simple 2 period model of dynamically efficient extraction of a nonrenewable resource with a finite stock of 35 units. Constant marginal extraction costs remain at 8. And the interest rate is 8%. We now know that due to technological change, demand for the resource will decrease in period 2. Hence, there are now different demand functions for each period. In particular, inverse demand functions for the 2 periods are: P1= 20- 0.4q1 P2= 22- 0.4q2 What is the optimal real price of the resource in the two periods?
Assume again that we have a simple 2 period model of dynamically efficient extraction of a nonrenewable resource with a finite stock of 35 units. Constant marginal extraction costs remain at 8. And the interest rate is 8%. We now know that due to technological change, demand for the resource will decrease in period 2. Hence, there are now different demand functions for each period. In particular, inverse demand functions for the 2 periods are: P1= 20- 0.4q1 P2= 22- 0.4q2 What is the optimal real price of the resource in the two periods?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Assume again that we have a simple 2 period model of dynamically efficient extraction of a nonrenewable resource with a finite stock of 35 units. Constant marginal extraction costs remain at 8. And the interest rate is 8%. We now know that due to technological change,
P1= 20- 0.4q1 P2= 22- 0.4q2
What is the optimal real price of the resource in the two periods?
P1= 20- 0.4q1 P2= 22- 0.4q2
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You sure it is 12.232 and not 14.232 for period 2?
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