Question
1. LitCo extracts lithium for various types of batteries. Suppose that the demand is: P = 400 - 8Q, where Q is tons of lithium
1. LitCo extracts lithium for various types of batteries. Suppose that the demand is: P = 400 - 8Q, where Q is tons of lithium and P is $/ton. Assume that marginal extraction cost is $20 and the discount rate is 10%. Assuming there are only 50 tons of lithium remaining in the mine, how much should LitCo extract today, and how much a year from now? What will be the price of lithium today and one year from now? What will be the total social welfare (graphical and arithmetic solution)? 2. Referring to question 1, suppose LitCo has a monopoly on uranium. Given the information in question 1, how much will LitCo produce in each period, and what price will they charge? Show the change in total social welfare as compared to question 1 (both graphically and arithmetically).
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