Consider a two-period dynamic resource allocation problem where the efficient allocation of a resource implies a market price of $4 in the first period (i.e., P1=4). Assuming that the constant marginal extraction cost of the resource in both periods is $1 and that the social discount rate is 10% (i.e., r=0.10), what must the socially efficient market price in the second period P2 be? Please round your final answer to two decimal places if necessary. a. $4.30 b. $11.20 c. $4 d. $1

Consider a two-period dynamic resource allocation problem where the efficient allocation of a resource implies a market price of $4 in the first period (i.e., P1=4). Assuming that the constant marginal extraction cost of the resource in both periods is $1 and that the social discount rate is 10% (i.e., r=0.10), what must the socially efficient market price in the second period P2 be? Please round your final answer to two decimal places if necessary. a. $4.30 b. $11.20 c. $4 d. $1

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Assume that the oil extraction company needs to extract Q units of oil (a depletable resource) reserve between two periods in a dynamically efficient manner. What should be a maximum amount of Q so that the entire oil reserve is extracted only during the 1st period if (a) the marginal willingness to pay for oil in each period is given by P = 30 - 0.5q, (b) marginal cost of extraction is constant at $3 per unit, and (c) discount rate is 2%?
Consider a nonrenewable resource that can be consumed either today (period 1) or tomorrow (period 2) and has a finite supply of 4 units. Assume the inverse demand for the resource in both periods is: P_1 = 150 - 25Q_1 P_2 = 150 - 25Q_2 Assume the marginal cost of extracting the resource is constant at $50 and the social discount rate is 15 percent (r = .15). What is the efficient level of consumption in period 1? Please report your answer out to at least two digits (e.g., 3.24).
Consider a nonrenewable resource that can be consumed either today (period 1) or tomorrow (period 2) and has a finite supply of 15 units. Assume the inverse demand for the resource in both periods is: P_1 = 100 - 5Q_1 P_2 = 100 - 5Q_2 Assume the marginal cost of extracting the resource is constant at $25 and the social discount rate is 10 percent (r = .10). If the social discount rate is decreased to 5% (r = .05), how much less of the resource would be consumed in the first period, assuming a dynamically efficient allocation? Please report your answer out to at least two digits (e.g., 3.24). Hint: Solve for the efficient allocation of the resource at r = .1 and then at r = .05. The difference in period one consumption is your answer.
Consider a nonrenewable resource that can be consumed either today (period 1) or tomorrow (period 2) and has a finite supply of 4 units. Assume the inverse demand for the resource in both periods is: P_1 = 30 - 5Q_1 P_2 = 30 - 5Q_2 Assume the marginal cost of extracting the resource is constant at $10 and the social discount rate is 20 percent (r = .2). Assuming the resource is allocated efficiently, what is the consumer surplus in period 1? Please report your answer out to at least two digits (e.g., 3.24).
Consider the following two-period model of dynamically efficient extraction of a non-renewable natural resource. The constant social marginal cost of extraction is 40 in each period and the total stock of the resource is Q = 300 units. Moreover, the social marginal benefit is MB(Qt) = 200 Qt, where Qt is the quantity of resource extracted in period t, for t = 0; 1. The discount factor is 0:8. (c) Suppose that there is a market to trade the resource. What is the equilibrium price corresponding to each period? Justify the answer.
Consider the following two-period model of dynamically efficient extraction of a non-renewable natural resource. The constant social marginal cost of extraction is 40 in each period and the total stock of the resource is Q = 300 units. Moreover, the social marginal benefit is MB(Qt) = 200 Qt, where Qt is the quantity of resource extracted in period t, for t = 0; 1. The discount factor is 0:8. What is the marginal user cost (or scarcity rent) of the resource in each period?
Consider the following two-period model of dynamically efficient extraction of a non-renewable natural resource. The constant social marginal cost of extraction is 40 in each period and the total stock of the resource is Q = 300 units. Moreover, the social marginal beneÖt is MB(Qt) = 200 Qt, where Qt is the quantity of resource extracted in period t, for t = 0; 1. The discount factor is 0:8. (c) Suppose that there is a market to trade the resource. What is the equilibrium price corresponding to each period? Justify the answer.
The general transfer pricing rule considers the additional outlay costs incurred by the supplying unit and opportunity costs for the supplying unit. In which scenarios will opportunity costs be zero? a. Where there are reliable external markets. b. Where there is no relaible external market and limited spare capacity; where there is no relaible market and spare capacity; where there is no reliable market and no spare capacity. c. Where there is a relaible external market and spare capacity, where there is no relaible external market and spare capacity. d. Where there is a reliable external market and no spare capacity.
The oil industry realizes their mistake and would now like to consider future generations. How much oil would they consume now, and how much would they conserve for the future generation? Assume the marginal net benefit you calculated in part b stays constant for the present and future generation, total oil available is 20 million barrels (Q1 + Q2 = 20), and use a discount rate of 3% with the future generation in 24 years (n=24).
Assume that a country is endowed with 5 units of oil reserve. There is no oil substitute available. How long the oil reserve will last if (a) the marginal willingness to pay for oil in each period is given by P = 11 - 0.46q, (b) the marginal cost of extraction of oil is constant at $4 per unit, and (c) discount rate is 3%?
Suppose that under the United States-Canada Air Quality Agreement, both countries agree to a combined 30 percent SO2 abatement standard. Further assume that the following SO2 abatement cost functions have been estimated by each country: TACUS = 500 + 1.5(AUS)2 MACUS = 3 AUS TACCAN = 1000 + 3(ACAN)2 MACCAN = 6 ACAN A. If the countries implement a uniform abatement standard, find the resulting values of TAC and MAC for each nation. Based on these values, is there an economic incentive the two nations to participate in an emissions trading program? Explain. B. Assuming a trading program is enacted, find the cost savings associated with a cost-effective abatement solution? C. What must be the price of a tradeable permit to achieve the cost-effective abatement allocation?
The annual market marginal demand curve for electricity is MB=400-1.5Q. The annual marginal cost curve is MC=50+Q. The government is considering whether to build one of three plants. The first will have a maximum production capacity of 50 units of Q; the second a maximum capacity of 100 units, and the third, a maximum capacity of 200 units. Plants need to be operated at maximum capacity; otherwise, excess investment cost (not depicted in the diagram) will be incurred. Given this background: What is the annual benefit of the 50-unit plant? What is the annual cost? What is the annual net benefit?