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Thus far we have assumed that the availability of backstop technology is common knowledge to all market participants. Therefore, the fully informed price-taking NR firms
Thus far we have assumed that the availability of backstop technology is common knowledge to all market participants. Therefore, the fully informed price-taking NR firms understand when the backstop will enter the industry. The resulting equilibrium price and extraction trajectories incorporate this knowledge. Suppose instead that, in an alternate scenario, no one knows anything about the backstop until the resource price reaches b = 5. the constant mareinal cost of the backston. At that time. the existence of the backstop is suddenly revealed to all market participants: the backstop is available at that time and thereafter. The rest of this question asks you to think about the resulting equilibrium price and extraction trajectories, and in particular to compare them to the trajectories shown in the figures.? (a) In this alternate scenario, where no one knows anything about the existence of the backstop before the price hits b = 5, could the fact that the backstop exists affect behavior before its existence becomes known? Answer Yes/No. Briefly explain
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