Only questions 3 and 4 Consider an industry that owns 50 tons of copper to be used for communications applications over two periods, years 0 and
Only questions 3 and 4 Consider an industry that owns 50 tons of copper to be used for communications applications over two periods, years 0 and
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter5: Investment Decisions: Look Ahead And Reason Back
Section: Chapter Questions
Problem 5.4IP
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Question
3
![Only questions 3 and 4
Consider an industry that owns 50 tons of
copper to be used for communications
applications over two periods, years 0 and 1.
Assume that the cost of extraction is zero. The
annual discount rate is 5 percent. The annual
stationary demand curve for the copper is Q =
200 – ½ P, where Q is in tons and P is in dollars
per ton.
1. How much copper would an efficient industry
extract in years 0 and 1?
2. What would the equilibrium price be in each
year?
3. Suppose the discount rate is 10 percent rather
than 5 percent. How does that change the
answer?
4. Suppose fiber optics, a perfect substitute
copper, will become available at the beginning
of year 1. The price of the fiber optic material will
effectively be zero. How much copper would the
efficient industry allocate to periods 0 and 1?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fccbb07df-3ad4-4195-9f7b-3931440f48e9%2Fc431d5f3-70a8-4a6c-934f-75d96f48b719%2Fu4pviwr_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Only questions 3 and 4
Consider an industry that owns 50 tons of
copper to be used for communications
applications over two periods, years 0 and 1.
Assume that the cost of extraction is zero. The
annual discount rate is 5 percent. The annual
stationary demand curve for the copper is Q =
200 – ½ P, where Q is in tons and P is in dollars
per ton.
1. How much copper would an efficient industry
extract in years 0 and 1?
2. What would the equilibrium price be in each
year?
3. Suppose the discount rate is 10 percent rather
than 5 percent. How does that change the
answer?
4. Suppose fiber optics, a perfect substitute
copper, will become available at the beginning
of year 1. The price of the fiber optic material will
effectively be zero. How much copper would the
efficient industry allocate to periods 0 and 1?
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