N8

Using a two-period model, illustrate the maximization of net benefits over time. Show how this is done mathematically and graphically (Assume the demand curve be P=10-0.4Q, marginal extraction costs are constant at $2/unit, and a resource constraint of 30 units, use 10% discount rate). a. How much resources are allocated in periods 1 & 2? b. What are the net benefits in periods 1 & 2? What is the present value of total net benefit? c. How does a change in the rate of discount affect the efficient allocation?