Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN: 9781305506381
Author: James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher: Cengage Learning
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Chapter 7A, Problem 2E
To determine
Effect on the optimal rate of extraction for a T oilfield due to low historic interest rates.
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Many states are now imposing severance taxes on resources being extracted within their borders.
How is an increasing marginal extraction cost (over time) of depeletable resource by the imposition of severance taxes compared to the case without taxes?
A. Marginal extraction cost increases due to the imposition of severance taxes
B. Marginal extraction cost decreases due to the imposition of severance taxes
C. Marginal extraction cost with severance taxes stays the same as the case without taxes
Consider the following two-period model of dynamically efficient extraction of a non-renewable natural resource. The constant social marginal cost of extraction is 40 in each period and the total stock of the resource is Q = 300 units. Moreover, the social marginal beneÖt is MB(Qt) = 200 Qt, where Qt is the quantity of resource extracted in period t, for t = 0; 1. The discount factor is 0:8.(a) What is the efficient quantity of resources extracted in each period? Provide a graphical representation of the solution.
(b) What is the marginal user cost (or scarcity rent) of the resource in each period?
(c) Suppose that there is a market to trade the resource. What is the equilibrium price corresponding to each period? Justify the answer.
(d) Suppose that it is now expected that because of an extraction technol- ogy improvement, while the Örst period marginal cost of extraction will still remain MXC1 = 40, the second period one will now de- crease to MXC2 = 20. Answer the previous…
Consider the following two-period model of dynamically efficient extraction of a non-renewable natural resource. The constant social marginal cost of extraction is 40 in each period and the total stock of the resource is Q = 300 units. Moreover, the social marginal beneÖt is MB(Qt) = 200 Qt, where Qt is the quantity of resource extracted in period t, for t = 0; 1. The discount factor is 0:8.(a) What is the efficient quantity of resources extracted in each period? Provide a graphical representation of the solution.
(b) What is the marginal user cost (or scarcity rent) of the resource in each period?
Chapter 7A Solutions
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
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- Compare two versions of the two-period depletable resource model that differ only in the treatment of marginal extraction cost. Assume that in the second version the constant marginal extraction cost is lower in the second period than the first (perhaps due to the anticipated arrival of a new, superior extraction technology). The constant marginal extraction cost is the same in both periods in the first version and is equal to the marginal extraction cost in the first period of the second version. In a dynamic efficient allocation, how would the extraction profile in the second version differ from the first? Would relatively more or less be allocated to the second period in the second version than in the first version? Would the marginal user cost be higher or lower in the second version? Why?Carrow_forwardA 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…arrow_forwardDo you think Qatar should be spending financial resources on floating Wind Turbine energy as part of its Vision 2030 plan, or are there any other alternative energy options that would be more beneficial for the country? Write a response that states your opinion clearly and provides one or two examples to support itarrow_forward
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