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You hired a mathematician to solve a 4-period nonrenewal resource problem assuming a competitive industry and a total resource constrain of 100. He returns an
You hired a mathematician to solve a 4-period nonrenewal resource problem assuming a competitive industry and a total resource constrain of 100. He returns an answer to you where per period output levels are increasing and he gets a lambda value: lambda = -3.35. From this you can conclude:
- Demand is too high to support the extraction of the resource, so the marginal user cost become negative.
- Competitive firms place no weight on the future and therefore behave like there is no opportunity cost of extracting resource today.
- Demand is too low for the constrain of 100 to be binding. Therefore, there is no scarcity.
- The mathematician must have made a mathematical mistake.
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