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4. Suppose that South Africa is trying to find the efficient amount of coal to extract,...

4. Suppose that South Africa is trying to find the efficient amount of coal to extract, which is a depletable resource. There are two periods and the inverse demand function is P = 15 - 0.5QD and the marginal cost of extraction is 5.

(a.) Use the static efficiency model to find the efficient allocation for the first time period. Also, compute the price of coal at that efficient allocation.

(b.) Now suppose that the total available quantity of coal is Q = 40. Is the static efficiency criteria sufficient? If yes, what is the efficient allocation of coal over the two periods? If no, why not?  

(c.) Now suppose that the total available quantity of coal is Q = 35. Is the static efficiency criteria sufficient? If yes, what is the efficient allocation of coal over the two periods? If no, why not?

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