Question

Please answer all of the following

Question 4. Non-Renewable Resource: Two Period Model (30 points) Consider the following two-period model of a depletable resource: 1. The demand for the resource in period 1 is MB. = 30 - Q.; 2. The demand for the resource in period 2 is MB2 = 40 - Q.; 3. The marginal extraction costs is MC = 10 in each period; 4. The discount rate is 50% (r = 0.50); 5. The total known stock of the depletable resource is 5 = 25 a. What is the efficient allocation of the resource between periods 1 and period 2? (10 points) b. Illustrate the efficient allocation of resources between period 1 and period 2 using the figure from class where the period 1 and period 2 marginal net benefits (MNB) curves are represented on the same graph. (5 points) c. What is the marginal user cost of the resource in period 1 at the equilibrium level of production in period 1? (5 points) d. What is the efficient allocation of the resource and the marginal user cost of the when S = 50? Explain (in words) the reason for the change in marginal user cost. (5 points) e. What is the efficient allocation of the resource and the marginal user cost in period 1 when r= 0.25 than r = 0.5? illustrate the efficient allocation in this case on the figure from (b.) (5 points)

Answer 1

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