A town is endowed with an oil reserve. The total stock of oil from the reserve is 110 barrels. The townmust sell all 110 barrels within two time periods, so the quantity extracted will be q1 +42 = 110, where91, for example, is the quantity extracted in period 1. The price per barrel that the town can sell theoil for is på = 150 – in each period. There is a constant cost of extraction e = 50, such that theresource rent earned by each barrel in each period is Te = Pt – c. If the interest rate is 20%, how muchoil will the town extract in period 1 and in period 2 (what should q and q2 be) if it wanted to extractefficiently (i.e. maximize profits)?

A town is endowed with an oil reserve. The total stock of oil from the reserve is 110 barrels. The town must sell all 110 barrels within two time periods, so the quantity extracted will be q₁ +92 = 110, where 71, for example, is the quantity extracted in period 1. The price per barrel that the town can sell the oil for is pt 150 in each period. There is a constant cost of extraction c= 50, such that the resource rent earned by each barrel in each period is T = Pt-c. If the interest rate is 20%, how much bil will the town extract in period 1 and in period 2 (what should q₁ and q2 be) if it wanted to extract efficiently (i.e. maximize profits)?