Question 2 - Resource Taxes ( 25 points) Your firm just acquired a large piece of land that holds nonrenewable resources. The initial stock is 500. Initial total rent (rent + quasi-rent) is 10 per unit of stock. You know from past experience that on average it costs 150 to develop a "mine", and you are successful 10% of the time. MC is constant. A. (5 points) What is the value of the land you acquired? What are the values of rent and quasi-rent for the mine (not per unit of resource)? B. (10 points) When you bought the land, you knew that there was a tax per unit of resource that grows with the interest rate (assume the interest rate is 5%). What can we deduce about the maximum level of (or upper bound on) tax per unit at the time of purchasing the land? Why is this the maximum tax? C. (10 points) Assume that prior to your investment in development (but after you bought the land), a new government is elected. This new government does not like resource extraction industries. You estimate that now there is a 50% chance that the government will set the initial tax at $9, and a 50% chance it'll leave the tax at the rate you calculated in part B once you've completed your development. Should you begin developing mines now? Explain