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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. Assume the coal resource is in fixed supply and its stock is 15 units of coal. Assume 2 periods of extraction: present and future and a discount rate of r = 10%. The demand function is given by MB = 10 - 0.5q and the supply function is given by a fixed MC cost of extraction MC = $5/unit of coal.
a) What is the optimal extraction rate in a static setup of the problem? Show numerically. Why cannot it be applied to this resource?
b) What is the optimal extraction rate each period in a dynamic setup of the problem? Show numerically.
c) What are the prices and MUC-marginal user costs each period? Show numerically.
d) What are the total net benefits obtained if the extraction rate equals the dynamic efficient rate? Show numerically.
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)?
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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