Given that the marginal cost of a ‘backstop’ (e.g. solar energy) is MCb per unit of an exhaustible resource, prove that the cost of the ‘backstop’ sets an upper limit on oil price and also determines the initial price of oil. (Hint: Utilize the expression pt = MC + (p0 − MC)(1 + r)t and consider T as the switch date.)
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Given that the marginal cost of a ‘backstop’ (e.g. solar energy) is MCb per unit of an exhaustible resource, prove that the cost of the ‘backstop’ sets an upper limit on oil
Utilize the expression pt = MC + (p0 − MC)(1 + r)t and consider T as the
switch date.)
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- A local restaurateur who had been running a profitable business for many years, recently purchased a three-way liquor license. This on-premise license gives the owner the legal right to sell beer, wine, and spirits in her restaurant. The cost of obtaining the three-way license was about $90,000, since only 300 such licenses are issued by the state. While the license is transferable, only $75,000 is refundable if the owner chooses not to use the license. After selling alcoholic beverages for about one year, the restaurateur came to the realization that she was losing dining customers and that her profitable restaurant was turning into a noisy, unprofitable bar. Subsequently, she spent about $8,000 placing advertisements in various newspapers and restaurant magazines across the state offering to sell the license for $80,000. After a long wait, she finally received one offer to purchase her license for $77,000. a) Would you recommend that she accept the $77,000 offer? b) The restaurateur…Many states are now imposing severance taxes on resources being extracted within their borders. How is an increasing marginal extraction cost (over time) of depeletable resource by the imposition of severance taxes compared to the case without taxes? A. Marginal extraction cost increases due to the imposition of severance taxes B. Marginal extraction cost decreases due to the imposition of severance taxes C. Marginal extraction cost with severance taxes stays the same as the case without taxesThis question illustrates the argument on p.114 of the book. A and B own neighboring properties. Beneath their properties is a common well that contains 200 units of oil. The cost to A of extracting oil from the well in period t depends on the number of units of oil in the well at the beginning of the period t, ut, and the number of units of oil A extracts in period t, xAt ; specifically, the average cost of extraction for A per unit in period t is xAt /ut. The analogous cost function for B is xBt/ut. The market price of a barrel of oil is 1, there are two periods (t = 1, 2), and the discount rate is zero. The oil is a common property resource. a) (2) Suppose that A and B "unitize" and cooperatively decide how much oil to extract, and split the profit between them. The jointly profit-maximizing policy is that each extracts 50 units of oil from her well in each of the first two periods, after which the well is dry. How much discounted profit will A and B each make? b) (2) Suppose…
- Theoretical restrictions on the parameters of the short-run cubic cost equation, TVC = aQ + bQ2 + cQ3, are: A. a > 0, b > 0, c < 0 B. a > 0, b > 0, c > 0 C . a > 0, b < 0, c > 0 D. a > 0, b < 0, c < 0The cost of production is given by C(q) = 1/3 q3 -15/2 q2 +36q+ 81. For what number of units, the manufacturing cost is minimal.(You will need to use a spreadsheet to tackle these questions.) 1. How much of q can be produced for £60,000 if the total cost function is TC = 86 + 152q − 12q2 + 0.6q3? 2. What output can be produced for £150,000 if TC = 130 + 62q − 3.5q2 + 0.15q3? 3. Solve for x when 0 = −1,340 + 14x + 2x2 − 1.5x3 + 0.2x4 + 0.005x5 − 0.0002x6
- A local restaurateur who had been running a profitable business for many years recently purchased a three-way liquor license. This license gives the owner the legal right to sell beer, wine, and spirits in her restaurant. The cost of obtaining the three-way license was about $90,000, since only 300 such licenses are issued by the state. While the license is transferable, only $75,000 is refundable if the owner chooses not to use the license. After selling alcoholic beverages for about one year, the restaurateur came to the realization that she was losing dinner customers and that her profitable restaurant was turning into a noisy, unprofitable bar. Subsequently, she spent about $8,000 placing advertisements in various newspapers and restaurant magazines across the state offering to sell the license for $80,000. After a long wait, she finally received one offer to purchase her license for $77,000. What is your opinion of the restaurateur’s decisions? Would you recommend that she accept…Rex Carr owns a junkyard which processes used cars into scrap metal. In the long-run Rex can use two methods to destroy cars. The first involves purchasing a hydraulic car smasher which costs $200 a year to own and then spending $1 for every car smashed. The second method involves purchasing a hammer that will last one year and costs $40, and paying his brother Otto Carr to destroy the cars at a cost of $5 each. What is the minimum number of cars processed per year for which Rex should be willing to purchase the hydraulic smasher?In 1997, researchers at Texas A&M University estimated the operating costs of cotton gin plans of various sizes. A quadratic model of cost (in thousands of dollars) for the largest plants was found to be very similar to: C(q)=0.023q^2+21.8q+326 where q is the annual quanity of bales (in thousands) produced by the plant. Revenue was estimated at $70 per bale of cotton. find the MC(q)/MR(q)/MP(q)/
- A company is using break-even analysis to determine how many units of a new product must be sold for the product to be profitable. Which of the following actions will cause the break-even point of a product to increase? a. Reduction in the purchase price of the equipment needed to produce the product b. Reduction in the per unit production cost of the product c. Reduction in the sales price of the product d. All of the answer choices are correct.Complete all of the following definitionsAssume an electricity generator can produce electricity from two different production technologies, a dirty technology and a clean technology. The quantity of electricity produced from the dirty technology is Qd in megawatt hours (MWh) and the amount from the clean technology is Qc. The dirty technology produces carbon emissions at a constant rate of d tons per MWh of electricity generation. The clean technology produces carbon emissions at a constant rate of c tons per MWh, where Bc < Bd. The cost functions for the two generation technologies are C(Qd) and C(Qc). The market price of electricity is P. Under these assumptions, the firm’s profit function is: Profit = PQd + PQc - C(Qd) - C(Qc). 1.) Take the partial derivative of profit with respect to each output (Qd and Qc) and set each equal to zero to find the profit maximizing (“first-order”) conditions for each type of electricity. Denote marginal costs of each type of electricity as MCd and MCc. Write down and interpret…