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Suppose that a limited supply of coal is available to be extracted and sold over two...

Suppose that a limited supply of coal is available to be extracted and sold over two time periods by a perfectly competitive mining industry. Assume that the demand curves for coal in the two periods are given by P1 =40–2q1 and P2 =40–2q2, where q1 and q2 denote the respective amounts of coal produced in periods 1 and 2, while P1 and P2 stand for price of coal in periods 1 and 2 respectively. The marginal cost of extracting coal is MC = 4 in both time periods. The total amount of coal available, X , is 10 units and the rate of discount is 40% (i.e., r = 0.4).

1. Compute the market equilibrium values of coal production and price in each time period.

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