Question

In: Economics

Part 1: Consider a two-period model for the extraction of iron. Use the information below to...

Part 1:

Consider a two-period model for the extraction of iron. Use the information below to answer the questions. If needed, you may round your answers to the tenths place. Circle or box your final answer.

            Demand in both periods: P = 200 – 2Q

            Marginal cost in period 1: MC = 40

            Marginal cost in period 2: MC = 20

Resource endowment Q = Q1 + Q2 = 100

            Discount rate: r = 10%

Solve for the optimal allocation across both periods (Q1 and Q2)

What is the marginal user cost faced by period 1 users (MUC1)?

Explain what the numbers you found for MUC1 represent. (note I’m not looking for a description of a formula).

Solutions

Expert Solution

Let me know if anything is unclear :)

Rahul Sunny answered 1 year ago
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