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Consider a two-period model of a market for a non-renewable resource. The total recoverable reserve of the resource is 734,800 tons, which the beneficent social
Consider a two-period model of a market for a non-renewable resource. The total recoverable reserve of the resource is 734,800 tons, which the "beneficent social planner" expects to be extracted fully over two periods. The marginal extraction cost is constant at $120 per ton. The market demand for the resource is stable and is represented by the following inverse demand curve: pptt = 3000 0.0075qqtt . The market interest rate is 7.5 percent. a. Solve for the efficient extraction quantities in each of the two periods. b. Confirm that the efficient extraction quantities are consistent with the
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