member are included in the heading on every page. You can turn in partially complete problem sets but late work is not accepted. Questions from Chapter 7 price equilibrium price without backstop equilibrium price with backstop time Figure 7.1: Solid curve shows the equilibrium price under the backstop. Dashed curve shows the equilibrium price without the backstop. Demand is y = 10p-2, C = 2, b = 5, To = 42, r = 0.05 quantity 16-- equilibrium resource sales 14 with backstop 1.2 D.8 0.6 0.2 equilibrium resource sales eithout backstop 40 time Figure 7.2: Solid curve: the equilibrium quantity of resource sales under the backstop. Dashed curve: the equilibrium quantity without the backstop.this alter the equilibrium price trajectory [the solid curve) in Figure 7.1'! Explain your reasoning. . Figures 7.1 and 7.2 represent a case where the backstop with marginal (= average) production cost is a constant, I). (As before, the backstop is available at b = U and the market knows this.) This quation changes only the cost function for the backstop. Suppose for this question that the backstop cost equals 2%622, so the marginal cost of the backstop equals 62 (instead of being constant at b). As before, average extraction costs are constant at C. (a) What is the backstop supply function and what is the backstop inverse supply function in this case? (b) Denote the inverse demand for energy {in = y + 2) as p = D (11:). Draw a linear demand function and set C = 5. Include in this gure the backstop supply function, assuming that b is such that the rmource is not worthless. [Depending on the magnitude of b, the resource is or is not worthless; the point of the question is for students to think about the relation between I) and the value of the resource.) Explain your gure. (c) Under the assumptions of part (b), might there be an initial phase during which the resource supplim the entire market (as is the case when the backstop marginal cost is constant)? Explain. (cl) Describe the evolution, over time, of the backstop market share. (Refer to Chapter 7.3.1.)