A core part of the theory of nonrenewable resources such as fossil fuels, minerals, and fossil groun

A core part of the theory of nonrenewable resources such as fossil fuels, minerals, and fossil ground water, is that the resource's value partly reflects its strict scarcity. Suppose that the total stock, S(o), of a nonrenewable resource is 15 units. The quantity demanded of the resource in each year is given by the equation Qt= 10 – Pt. The marginal cost of extraction is zero. The discount rate is 10%.

Suppose that the resource will be useful both this year and next year, t = 0, 1, but not thereafter.

i) What is the efficient price and quantity to extract in year 0?

ii) What is the efficient price and quantity to extract in year 1?

iii) How much do consumers benefit in year 0 and year 1?

 

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