Suppose there is a nonrenewable resource with inverse demand function p= 30-0.8q and with marginal extraction costs (MEC)= 8. The resource stock, S is finite and = 35 units. Suppose the time horizon is 2 periods and the discount rate is r= 8%. What quantity should be extracted in each period? What is the optimal price of the resource in the 2 periods
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Suppose there is a nonrenewable resource with inverse
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- Based on the following information: The investment cost is paid in full in quarter 0, and the cost of the factory is 100000 while the cost of the research is also 100000. The factory has a lifetime of 20 quarters (5 years) and the value of the factory at the end of quarter 20 is 0 Only green jetpacks should be produced at the factory throughout its lifetime. There is no investment in research to streamline production or material consumption. Suppose the quarterly demand in the market is constant and given at P = 338 - 0.018 * Q, where P is price and Q is the number of jetpacks in demand. Assume P is 248 USD and Q is 5000. There are 5 competitors in the market (including you), and all sell the same number of jetpacks each quarter at the price of 248 each. You produce as much as you sell. The costs associated with the quarterly production at the factory are given at K = 178 * Q + 20000, where 178 * Q is direct labor cost and materials, and 20000 is quarterly maintenance cost when Q is…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 = 34 - 0.2q, (b) marginal cost of extraction is constant at $3 per unit, and (c) discount rate is 2%?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…
- Assume again that we have a simple 2 period model of dynamically efficient extraction of a nonrenewable resource with a finite stock of 35 units. Constant marginal extraction costs remain at 8. And the interest rate is 8%. We now know that due to technological change, demand for the resource will decrease in period 2. Hence, there are now different demand functions for each period. In particular, inverse demand functions for the 2 periods are: P1= 20- 0.4q1 P2= 22- 0.4q2 What is the optimal real price of the resource in the two periods? P1= 20- 0.4q1 P2= 22- 0.4q2Find The net present value of the project if discounted at a social discount rate of 7%.Demand for a company’s product is given by the following equation: Q=1000-0.5P. You are also given that its total cost function TC=100+1000Q. Compute the profit maximizing price and quantity B. A firm earns an accounting profit of K150, 000 per year in project A. The firm could earn K150, 000 and K120, 000 in investments B and C, respectively. How much economic profit is the firm earning assuming the three projects are mutually exclusive?
- Suppose the Marginal Benefit and Marginal Cost for crude oil at any given period is: MB = 159 - 2.1Q and MC=36 + 0.9Q Where price is measured in dollars and quantity is measured in barrels. The total oil reserve is 50 tons. What is the Optimal barrels of oil that should be extracted in the current period (suppose we don’t need to be concerned with any future periods)?Why hasn't the depletion of nonrenewable resources happened as predicted? Do the pricing signals at this time indicate that nonrenewable resources are almost exhausted?According to the Resource-Based View, which of the following is most likely to result in sustainable above-normal profit rates? Access to a strong CEO that can lead the firm to an unprecedented level of market share Access to intangible resources that are currently producing significant value Access to complex capabilities that are currently producing significant value Access to tangible resources that are currently producing significant value.
- 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…Which of the following describes accounting profits? Depreciation of fixed and variable assets Total revenue less explicit and implicit costs The difference between cash brought in and cash paid out Opportunity cost of resources previously owned Which of the following are based on both explicit and implicit costs? Economic profits Constant returns to scale Economies of scale Accounting profits The quantity demanded in the widget market is significantly greater than the quantity found at the bottom of the LRAC. Based on this information, which of the following is likely to occur? Only one firm will produce and sell widgets. Many firms will compete in the widget market. A monopoly will form in the widget industry. Most firms will experience diseconomies of scale. Market demand and the LRAC determine which of the following? The number of firms that will exist in an industry The number of firms with diseconomies of scale The level of output for…Illustrate how NPW decision rules work?