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Assume that instead of marginal costs of zero, marginal cost of production for BigTex is constant, but positive. The demand curve is the same as
Assume that instead of marginal costs of zero, marginal cost of production for BigTex is constant, but positive. The demand curve is the same as for Problem 1. A. (5) How does this change the optimal allocation? Set up and solve the maximization problem symbolically first, using P - MC or Hotelling rent as cash flows (then plug in numbers to solve for the actual numerical solutions). Express the solution in terms of the "Hotelling Rule." B. (10) Assuming that the discount rate remains at 15% and R = 169, what is the optimal allocation of production across the two periods if MC is constant at $20? C. (10) Show this allocation on the typical diagram that was covered in class as it is in the Dahl text. Label everything necessary and show your anwers from above
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