Provided that:

Suppose you have three producers of oil A, B, and C, with extractions costs of $8, $10, and $12 per barrel of oil. Assume there are no user costs. Assume that each well can produce 100 barrels of oil per day.

If price of oil is $ 9 per barrel, then only producer A will enter the market as B and C are not able to cover their cost at this price and hence 100 barrels of oil will be produced.

If price of oil is $ 10 per barrel, then only producer A and B will enter the market as C is not able to cover their cost at this price and hence 200 barrels of oil will be produced.

If price of oil is $ 11 per barrel, then only producer A and B will enter the market as C is not able to cover their cost at this price and hence 200 barrels of oil will be produced.

Total rent = price - cost of extraction = 11-8 =$ 3 per barrel = 3*100 =300

QUESTION:

Assume now that we know that there is only 200 barrels of oil in the ground which must last society for two years. The extraction cost is $10 per barrel. In each year, the demand for oil begins at $25, and declines linearly (constantly) by $1 for each 5 barrels sold, i.e.

Price Qty Demanded

$25 0

$24 5

$23 10

$22 15 etc.

How many barrels will be extracted in the first year? ______. In the second year? ______

What will be the total marginal cost cost in the first year? ______. In the second year? ______

What will be the user cost in the first year? ______. In the second year? ______.