A company is planning to extract Oil from an Oil well in two time periods: Period 1 & Period 2. The demand for Oil in each period is MB = 30 - 0.4q, where q is the quantity of Oil extracted. Marginal cost of extracting Oil is constant, MC = $12.

a) Assume that the Oil supply is not limited but infinite. What would be the efficient quantity of Oil to extract in period 1 and period 2?

b) Assume that the Oil supply is limited and only 45 units are available. If we extract q* unit (the unitwe get from question 1) in period 1, as we would like to, what would that leave for Period 2?

c) Has the efficiency rule failed us? How?

d) This time we will take the limited stock directly into account. What would be the efficient quantity of Oil to extract in period 1 and period 2, assuming a discount rate of 9percent.'

e) What are the marginal user costs in period 1 and period 2.

f) calculate the Hoteling rule.