Determine the dynamic efficient allocation

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Reference no: EM131246765

Assume that the Marginal Cost in period 1 is constant and equal to MC1=$2; and the Marginal Cost in period 2 is also constant and equal to MC2=$4. In addition, assume that the discount rate is 5%, the total amount of the depletable resource is 35 tons and the demand function in period 1 is Pt=40-q1 and in period 2 is equal to P2=15-q2 . [Use only the first two significant digits of a number]

a. Determine the dynamic efficient allocation.

b. Determine the optimal prices and marginal user cost in both periods (in current value).

c. Construct a graph representing the dynamic efficient allocations in both periods.

d. Determine the Net benefit in both periods. Are they equal? If your answer is no argue, how future generations could be compensated for this difference.

Reference no: EM131246765

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