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QUESTION
Consider a simple two-period model of dynamically efficient extraction of a nonrenewable resource with a finite stock of 390 tons.
- Consider a simple two-period model of dynamically efficient extraction of a nonrenewable resource with a finite stock of 390 tons. It costs $100 per ton to extract the resource and deliver it to the market. In each period, the demand for the resource can be represented by the following inverse demand equation: Pi = 600 - xi for i=1,2. Suppose the interest rate is 0%. What would be the efficient allocation (or the optimal quantity of resource extraction in the two periods)?
