Scenario Period 1’s demand for aluminum is given by the equation: P = 210 - 1.5Q...

Question

Question

Scenario

Period 1’s demand for aluminum is given by the equation:
- P = 210 - 1.5Q
In Period 2, the population is greater but there are also different uses for aluminum that affect demand. They have a different demand function:
- P = 190 - Q
The marginal cost of extraction is constant and equal in both periods.
- MC = 30
The resource endowment of aluminum to be allocated across both periods is 200 units, and the future is discounted at a rate of r=5% per period.

Instead of marginal cost being constant and equal to 30, now suppose marginal cost rises with the number of units extracted, which could be a more realistic assumption. Now, MC = 30 + 0.5Q for both periods. What is the new optimal allocation across periods 1 and 2?

business economics

Answer 1

Answer #1

Answer 2

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