1.Assume the following two equations and the discount rate for the extraction of a natural resource:

A)P = 28 - 3 Q for Marginal Willingness to Pay

B)P = 4 for a constant Marginal Cost

C)Discount Rate = 6%

Solve for the following in a two time period setting:

1)Find and label the equilibrium when there is no limit on Q.

2)State the assumptions needed to solve the optimal extraction rate of the resource in our setting.

3)Assume that there are only 9 units of the natural resource to be extracted, find the optimal extraction rates over the two periods.

4)Find the Total Marginal Net Benefits under the optimal extraction rates.

5)Find the Marginal User Cost for each time period of the resource.

1.Assume the following two demand curves:

A)Marginal Willingness to Pay = 18 - 0.05 Q

B)Marginal Willingness to Pay =26 - 3 Q

Solve for the following:

1)Start each curve at a price of $8 and decrease the price to $5,

a.What is the percent change in quantity demanded on each curve (hint: watch your signs)

b.Using the mid-point method, what is the percent change in quantity demanded?

2)Find the elasticity of each of these curves at this price change using both the percent change method and the mid-point method.

3)Are (A) and (B) elastic or inelastic.

4)Describe elastic and inelastic goods. Dose a good become more elastic over time? Explain.