Suppose market demand for oil is Q(P) = 100 – 0. 75P where Q is billions of barrels (BBL)or oil per year and P is price per barrel where, MC(Q) = 7Q 2 – 3Q + 6 There is a total of 100 BBL of oil available to use in periods 0 (current year) and 1 (next year). Assume the interest rate is 5%. What is the revenue-maximizing quantities of oil to extract in each period? What are the corresponding prices? What is the CS, PS, SW in each period? Show that this solution maximizes social welfare.

Suppose market demand for oil is Q(P) = 100 – 0. 75P where Q is billions of barrels (BBL)or oil per year and P is price per barrel where, MC(Q) = 7Q 2 – 3Q + 6 There is a total of 100 BBL of oil available to use in periods 0 (current year) and 1 (next year). Assume the interest rate is 5%. What is the revenue-maximizing quantities of oil to extract in each period? What are the corresponding prices? What is the CS, PS, SW in each period? Show that this solution maximizes social welfare.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.7P

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