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Suppose the Marginal Benefit and Marginal Cost for crude oil at any given period is MB = 380-3Q and MC = 28 + 1Q Where price is measured in dollars and quantity is measured in barrels. Assume the following: • The total oil reserve is 120 tons • There are 2 periods, 11 years apart

Suppose the Marginal Benefit and Marginal Cost for crude oil at any given period is MB = 380-3Q and MC = 28 + 1Q Where price is measured in dollars and quantity is measured in barrels. Assume the following: • The total oil reserve is 120 tons • There are 2 periods, 11 years apart

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Now, assume that society like to allocate the reserve efficiently across both periods.

B: If the discount rate is Zero (0%), what should be the optimal allocation for the 2 periods?

C: Now assume the discount rate is 5.5%, what should be the optimal allocation for the 2 periods?

Suppose the Marginal Benefit and Marginal Cost for crude oil at any given period is MB = 380 – 3Q and MC = 28 + 1Q Where price is measured in dollars and quantity is measured in barrels. Assume the following: • The total oil reserve is 120 tons • There are 2 periods, 11 years apart • MB and MC are the same in both periods Resource Allocation, Part A: If the first period is ONLY interested in maximizing its own welfare and no restriction is imposed, how much will each period end up consuming? (i.e. what is Q₁ and Q2)? barrels and Q2 Q₁ = barrels
Transcribed Image Text:Suppose the Marginal Benefit and Marginal Cost for crude oil at any given period is MB = 380 – 3Q and MC = 28 + 1Q Where price is measured in dollars and quantity is measured in barrels. Assume the following: • The total oil reserve is 120 tons • There are 2 periods, 11 years apart • MB and MC are the same in both periods Resource Allocation, Part A: If the first period is ONLY interested in maximizing its own welfare and no restriction is imposed, how much will each period end up consuming? (i.e. what is Q₁ and Q2)? barrels and Q2 Q₁ = barrels
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How many barrels can the first period consume before any User Cost occurs?

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