Congratulations! You just won a million-barrel oil well! You are now trying to manage your asset. The
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(a) At a party, Dr. Rig (head of the Enterprise) announces that oil prices will double next month. How much oil will you sell this month, before the price increase?
(b) Dr. Rig then announces that the price will also double the following month. How much oil will you sell next month, before the following month's price increase?
(c) Dr. Rig then says that in the fourth month (the current month is the first), oil prices will drop to $10/barrel and will stay that low for years. How much oil do you decide to sell in the third month, before the fourth month's price drop?
(d) What is that trend for prices?
(e) Given that trend, will the Enterprise as a whole sell more oil in the next month than in the current month, or less?
(f) How do you expect this price trend to affect the incentives for Enterprise members to explore for new oil deposits?
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Related Book For
The Economics Of The Environment
ISBN: 9780321321664
1st Edition
Authors: Peter Berck, Gloria Helfand
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