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 5 units. Assume that the inverse demand for the resource in each period is given by: P1 = 25 - 5Q1 P2 = 25 - 5Q2 Moreover, assume that the resource's marginal extraction cost (MEC) is constant in both periods at $5 and that the social discount rate is 25% (i.e., r=0.25). Assuming that the resource is efficiently allocated, what is the consumer surplus in period 1?

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 5 units. Assume that the inverse demand for the resource in each period is given by: P1 = 25 - 5Q1 P2 = 25 - 5Q2 Moreover, assume that the resource's marginal extraction cost (MEC) is constant in both periods at $5 and that the social discount rate is 25% (i.e., r=0.25). Assuming that the resource is efficiently allocated, what is the consumer surplus in period 1?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.10P: Wonopoly and natural resource prices Suppose that a firm is the sole owner of a stock of a natural...

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