Let= 16,= 0.4, and C = $2.In your calculations below, indicate prices and quantities to two decimal points.

Optimal extraction over two periods In this question, we consider the optimal extraction of a non-renewable resource (oil) over two years (year 0 and year 1). Demand is given by: Pt = a [3 qt, where Pt is the price in period tand qt is the quantity in year t. Extraction costs are constant at $0 per unit. Assume the discount rate is r=5%. In your calculations below, indicate prices and quantities to two decimal points. Question 5 (7 points) Let u = 16, B = 0.4, and C = $2. In your calculations below, indicate prices and quantities to two decimal points. 21. Suppose that there are unlimited reserves of oil. How much would be extracted in each period (go and q1) to maximize the net present value of the resource and what would be the equilibrium prices periods (p0 and p1)? Briefly outline your calculations. (2 marks) b. Now suppose there are only 10 units of the resource available. Calculate the optimal amounts of the resource that should be extracted in year 0 and year 1? What is the equilibrium price of the resource in each of the years? Show your calculations. Indicate prices and quantities to two decimal points. (3 marks) c. The graph below depicts the two period resource allocation problem described in this question. Suppose it is decided that the non-renewable resource will be distributed equally between period 0 and period 1. State what will be the impact on the present value of net benefits received in period 0, in period 1, and the total over the two periods? You do not need to do any calculations. Just indicate areas on the graph. (2 marks) __ Poc - - mm) is 16 1; E a 8 8 i- 5 5 4 4 2 2 o 5. '5 o 5 5 8 9 10