Question

17. Deutschekohle AG (DK AG) acquired the right, in perpetuity, to a seam of (uniform- quality) lignite (brown coal), known to contain 100 tonnes. Lignite is surface- mined (strip-mined). The current and (certain) future price of lignite is 100/tonne. The cost of extraction, as a function of the quantity extracted each period, Y,, is C)- DK AG has used 0.10 (10%) as the interest rate to discount future profit (periods t-12 ) The maximum discounted profit from extracting lignite from the seam is obtained when DK AG follows the extraction plan below: Time ('t') Yt 23.649 21.013 18.115 14.926 11.419 7.561 3.317 6 Before any mining commences, the directors of DK AG order the firm's operations managers to recalculate the extraction plan using an interest rateoraoss%. What changes to planned optimal extraction will result? A) In the new plan, Yo will be less than 23.,649, Y, will be greater than 3.317 B. In the new plan, Yo will be less than 23.649, Ys will be less than 3.317 In the new plan, Yo will be greater than 23.649, Ys will be greater than 3.317 D. In the new plan, Yo will be greater than 23.649, Ys will be less than 3.317 R In the new plan, Yo will be greater than 23.649, we cannot determine the change in Y
Answer is A

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