How much would be allocated to each period

Assignment Help Microeconomics

Reference no: EM132208345

Question: Suppose that that inverse demand function for a depletable resource is given by:

p = 10 - q

where p is the price and q is the quantity. Assume that 6 units of the resource are available to be allocated between two periods. Assume that the marginal cost of supplying the resource in each period is $4. (there is not given discount rate in this question)

a) In a statically efficient allocation, how much would be allocated to each period? Draw a diagram to explain your results.

b) In a dynamically efficient allocation, how much would be allocated to each period? Draw a diagram to explain your results.

c) How would each of the following affect the dynamically efficient resource allocation? Draw a diagram to explain your results.

i An increase in the discount rate.

ii An increase in the total supply of the resource.

Reference no: EM132208345

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