Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 19, Problem 6DQ
Sub part (a):
To determine
The impact of technological improvements in present and future costs.
Sub part (b):
To determine
The impact of technological improvements in present and future costs.
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Suppose the Marginal Benefit and Marginal Cost for crude oil at any given period is:
MB = 159 - 2.1Q and MC=36 + 0.9Q
Where price is measured in dollars and quantity is measured in barrels. The total oil reserve is 50 tons.
What is the Optimal barrels of oil that should be extracted in the current period (suppose we don’t need to be concerned with any future periods)?
Recall the model of nonrenewable resource extraction presented in Figure. Suppose that a technological breakthrough means that extraction costs will fall in the future (but not in the present). What will this do to future profits and, therefore, to current user cost? Will current extraction increase or decrease? Compare this to a situation where future extraction costs remain unchanged but current extraction costs fall. In this situation, does current extraction increase or decrease? Does the firm’s behavior make sense in both situations? That is, does its response to the changes in production costs in each case maximize the firm’s stream of profits over time?
70 – p and the marginal cost of retail water is
2. Suppose retail water demand is given by wa
mc = 0.00125w?. Currently the supplier cannot fulfill the quantity demanded under marginal-cost
pricing, because natural water is in short supply. Suppose that only 32 units of natural water are
available. Due to system leakage and evaporation, the relationship between natural water pumped
and retail water received is
Wntri – 10
Wrtl
1.1
What is the value of an action to increase natural water availability to 43 units?
Chapter 19 Solutions
Economics (Irwin Economics)
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