The inverse demand function for a depletable resource is P=8-0.4q and the marginal cost of supplying it is $2 If 20 units are to be allocated between two periods in a dynamic efficient allocation, how much would be allocated to the first period and how much to the second period when the discount rate is 5% and 10% (Hint Demand Function is the same in both periods)Given the discount rate, what would be the efficient price in the two periods?What would be the marginal user cost in each period?Assume a discount rate of 10% determine the efficient allocation amount between the two periodPrepare a schedule of the discount rate and the efficient allocation for the two-period and graph the relationship. What can you say about the discount rate and the allocation between the two periods?

Marginal user cost is positively related to price. It means as price rises then marginal user cost…

Answered: The inverse demand function for a…

14th Edition

ISBN:9780190931919

Author:NEWNAN

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Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The inverse demand function for a depletable resource is P=8-0.4q and the marginal cost of supplying it is $2

If 20 units are to be allocated between two periods in a dynamic efficient allocation, how much would be allocated to the first period and how much to the second period when the discount rate is 5% and 10% (Hint Demand Function is the same in both periods)
Given the discount rate, what would be the efficient price in the two periods?
What would be the marginal user cost in each period?
Assume a discount rate of 10% determine the efficient allocation amount between the two period
Prepare a schedule of the discount rate and the efficient allocation for the two-period and graph the relationship. What can you say about the discount rate and the allocation between the two periods?

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