Reallocate production between period and period

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Assume the market for crude oil is perfectly competitive with no externalities and the volume of total reserves is fixed and known. (These are the assumptions in Example 4.2 of the textbook.) Suppose MC = 0 in both periods, and P1 < P0*(1+r). Explain how and why firms in the market will reallocate their production between period 0 and period 1.

Reference no: EM133232210

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