MICROECONOMICS (LL) W/CONNECT ACCESS
21st Edition
ISBN: 9781264197163
Author: McConnell
Publisher: MCG CUSTOM
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Chapter 19, Problem 8DQ
ADVANCED ANALYSIS Suppose that a government wants to reduce its economy’s dependence on coal and decides as a result to tax coal mining companies $1 per ton for every ton of coal that they mine. Assuming that coal mining companies treat this tax as an increase in extraction costs this year, what effect will the tax have on current extraction in the model used in Figure 17.7? Now, think one step ahead. Suppose that the tax will be in place forever, so that it will also affect extraction costs in the future. Will the tax increase or decrease user cost? Does this effect increase or decrease the change in current extraction caused by the shift of the EC curve? Given your finding, should environmental taxes be temporary? LO17.4
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Recall the model of nonrenewable resource extraction presented in Figure. Suppose that a technological breakthrough means that extraction costs will fall in the future (but not in the present). What will this do to future profits and, therefore, to current user cost? Will current extraction increase or decrease? Compare this to a situation where future extraction costs remain unchanged but current extraction costs fall. In this situation, does current extraction increase or decrease? Does the firm’s behavior make sense in both situations? That is, does its response to the changes in production costs in each case maximize the firm’s stream of profits over time?
Compare and contrast the difference between dynamic (intertemporal) efficiency and static efficiency with respect to non-renewable resources.
a. What are the efficiency conditions for each? Explain your answer.
b. What costs reflected in the inter-temporal analysis are not captured in the static analysis? Explain your answer.
c. How does the discount rate factor into each analysis?
d. What impact does the discount rate have on the allocation of non-renewable resources across time and long run price path of non-renewable resources?
e. Discuss the ethical issues associated with economists use and choice of a discount rate when analyzing natural resource and environmental problems.
Q: Determine whether the following statemnts are true or false:
a) The economic costs of a firm are payments to resource owners, sufficient to divert these resources from alternative consumption possibilities.
b) Economic profit is an implicit cost.
c) The larger the volume of production in the firm, the lower the total fixed costs.
Chapter 19 Solutions
MICROECONOMICS (LL) W/CONNECT ACCESS
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