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Marginal cost of extracting oil

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Reference no: EM133355576

Suppose that the marginal cost of extracting oil is $40 per barrel and that this does not change over time or with the amount extracted. The current price of oil is $60 per barrel and the interest rate is 5%.

1. What is the current resource rent (or marginal user cost) for oil?

2. Assuming Hotelling's rule holds true, provide an expression you could evaluate on a calculator for the resource rent (or marginal user cost) 20 years from now.

Reference no: EM133355576

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