Please explain your answers so I can understand the concepts.
a)Use the TWO-PERIOD model of resource extraction to explain/illustrate how an unregulated market optimally allocates a fixed resource over time. Be sure to identify the critical assumptions you need to get this result (e.g. discount rates, market structure, resource constraint, etc.).
b) Explain why firms choose output so that Marginal User Costs are equalized in present value terms over both periods.
c) Explain how to find the asset value of the resource in situ.
d) How do the private optimal extractions change if interest rates rise? What is the intuition?
e) Explain why an unregulated market over-exploits a resource relative to the socially optimal extraction. Show how to find the Deadweight Loss.
Please explain your answers so I can understand the concepts.
a)Use the TWO-PERIOD model of resource extraction to explain/illustrate how an unregulated market optimally allocates a fixed resource over time. Be sure to identify the critical assumptions you need to get this result (e.g. discount rates, market structure, resource constraint, etc.).
b) Explain why firms choose output so that Marginal User Costs are equalized in present value terms over both periods.
c) Explain how to find the asset value of the resource in situ.
d) How do the private optimal extractions change if interest rates rise? What is the intuition?
e) Explain why an unregulated market over-exploits a resource relative to the socially optimal extraction. Show how to find the Deadweight Loss.
