(a) What is the efficient quantity of resources extracted in each period? Provide a graphical representation of the solution. (b) What is the marginal user cost (or scarcity rent) of the resource in each period? (c) Suppose that there is a market to trade the resource. What is the equilibrium price corresponding to each period? Justify the answer.
Consider the following two-period model of dynamically efficient extraction of a non-renewable natural resource. The constant
(a) What is the efficient quantity of resources extracted in each period? Provide a graphical representation of the solution.
(b) What is the marginal user cost (or scarcity rent) of the resource in each period?
(c) Suppose that there is a market to trade the resource. What is the
(d) Suppose that it is now expected that because of an extraction technol- ogy improvement, while the Örst period marginal cost of extraction will still remain MXC1 = 40, the second period one will now de- crease to MXC2 = 20. Answer the previous questions (a)-(c) under this alternative premise.
(e) How will the answers to questions (a)-(c) change if, because of new discoveries, the known reserves of the natural resource become Q = 400.
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