Discuss the extraction decisions of oil

Reference no: EM133441351

Assignment:

(Non-renewable resources) Consider the extraction decisions of oil, a non-renewable resource with fixed deposit R=75. The demand for oil is given by function Q = 100 - P. The cost of extraction is 10 per period. Both demand function and extraction cost are constant over time. The interest rate is 10%.

(a) Assume that the price at the initial period P1=60. Solve for the price path in the subsequent two periods, P2 and P3, as well as the quantity of oil demanded in the subsequent two periods, Q2 and Q3.

(b) During how many periods does the extraction take place?

Reference no: EM133441351

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