Suppose that there is a nonrenewable resource that can be consumed today (period 1) or tomorrow (period 2) and that it has a fixed supply of 2 units. Assume that the inverse demand for the resource in each period is given by: P₁ =25-50₁ P2-25-502 Moreover, assume that the resource's marginal extraction cost (MEC) is constant in both periods at $5 and that the social discount rate is 10% (i.e., r=0.10). Assuming that the resource is efficiently allocated, what are the net benefits in period 1? When calculating intermediate values (i.e., things like prices and quantities that are not your final answer, which is consumer surplus in this problem), please round them to two decimal places. And as always, please round your final answer to two decimal places as well. That is, you may round values besides your final answer in this problem while working towards finding your final answer. Answer:
Suppose that there is a nonrenewable resource that can be consumed today (period 1) or tomorrow (period 2) and that it has a fixed supply of 2 units. Assume that the inverse demand for the resource in each period is given by: P₁ =25-50₁ P2-25-502 Moreover, assume that the resource's marginal extraction cost (MEC) is constant in both periods at $5 and that the social discount rate is 10% (i.e., r=0.10). Assuming that the resource is efficiently allocated, what are the net benefits in period 1? When calculating intermediate values (i.e., things like prices and quantities that are not your final answer, which is consumer surplus in this problem), please round them to two decimal places. And as always, please round your final answer to two decimal places as well. That is, you may round values besides your final answer in this problem while working towards finding your final answer. Answer:
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Suppose that there is a nonrenewable resource that can be consumed today (period 1) or tomorrow (period 2) and that it has a fixed supply of 2 units.
Assume that the inverse demand for the resource in each period is given by:
P₁ =25-50₁
P2-25-502
Moreover, assume that the resource's marginal extraction cost (MEC) is constant in both periods at $5 and that the social discount rate is 10% (i.e.,
r=0.10).
Assuming that the resource is efficiently allocated, what are the net benefits in period 1?
When calculating intermediate values (i.e., things like prices and quantities that are not your final answer, which is consumer surplus in this problem),
please round them to two decimal places. And as always, please round your final answer to two decimal places as well. That is, you may round values
besides your final answer in this problem while working towards finding your final answer.
Answer:
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