Optimal extraction rate. Suppose that the capital-output ratio is constant and that the real interest rate takes

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Optimal extraction rate. Suppose that the capital-output ratio is constant and that the real interest rate takes the constant value r. Using the energy model in Section 10.1, solve for the constant rate of extraction s*E that maximizes the present discounted value of output per worker. Explain and interpret your result. (Hint: notice that output per worker grows at a constant rate, so that this present value is relatively easy to compute. Assume r is suffi ciently large.)

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Introduction To Economic Growth

ISBN: 9780393919172

3rd Edition

Authors: Charles I. Jones, Dietrich Vollrath

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