There are two remaining exhaustible energy sources, underground oil and off-shore oil, with extraction costs of $2/barrel
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There are two remaining exhaustible energy sources, underground oil and off-shore oil, with extraction costs of $2/barrel and $6/barrel, respectively. There is also solar energy with the price of $12 per energy equivalent of a barrel of oil. Everyone believes that there are currently S1 barrels of underground oil and S2 barrels of offshore oil remaining. How would the discovery of A additional barrels of underground oil affect the time and the gross price at which offshore oil will first be extracted? How will the discovery affect the length of the “offshore oil age,” that is, the length of the time interval during which we use offshore oil?
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The first step is to trace the price and stockexhaustion paths under current beliefs about stocks To do this note first that the last drop of offshore ...View the full answer
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