MICROECONOMICS--LOOSELEAF
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ISBN: 9781264022588
Author: McConnell
Publisher: MCG
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Question
Chapter 19, Problem 6DQ
Sub part (a):
To determine
The impact of technological improvements in present and future costs.
Sub part (b):
To determine
The impact of technological improvements in present and future costs.
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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)?
Consider a two-period competitive extraction model (where t = 0, 1) where demand is pt = 100 - 4qt, where qt is million tons mined per period, total extraction costs are 0 (the marginal extraction cost is zero), and the discount rate is 10 percent. If the total stock available to mine over these two periods equals 60 million tons, then…
A. there is scarcity and the marginal user cost is positive.
B. there is no scarcity and the marginal user cost is zero.
C. there is scarcity but the marginal user cost is zero.
D. there is no scarcity because the marginal extraction cost is zero.
Consider the previous question. Based on your answer to that question, we would expect (note: you don't need to solve for any quantity levels to answer this question):
A. q1 to be larger than q0.
B. q0 to be larger than q1. (wrong)
C. q0 to be the same as q1.
D. q0 to be positive and q1 to be negative.
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%?
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