Economics of exhaustible resources, Microeconomics

Economics of Exhaustible Resources

A resource is depletable if its stock decreases over time whenever the resource is being used. In this case the owner of the stock decides about the rate of extraction keeping in view the exhaustible nature of resource. Extraction of resources, as you can imagine, requires costs to be incurred while the extracted resources generate revenue when sold in the market. Hotelling's rule provides optimal extraction rate for such resources.

Let St represents stock at time‘t’. Et is extraction at time’t’.

Since the stock depletion at time’t’ affects availability in future periods, the stream of revenue and costs should be considered. In other words, the resource owner cannot decide for a single period independent of future periods. Given resource and cost functions, with the constraints defined by resource depletability the resource owner chooses extraction over time to maximize present value of total profit. As resources indicate a stock, which can be extracted over several periods, there is future stream of costs and revenues. Moreover, future revenues (also costs) have lower value than present revenue. Thus, future revenues and costs need to be discounted.

 

Posted Date: 12/18/2012 1:14:54 AM | Location : United States







Related Discussions:- Economics of exhaustible resources, Assignment Help, Ask Question on Economics of exhaustible resources, Get Answer, Expert's Help, Economics of exhaustible resources Discussions

Write discussion on Economics of exhaustible resources
Your posts are moderated
Related Questions
Define Nash equilibrium and explain with the help of the game ''prisoner''s dilemma''.


Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Can marginal cost be constant? If so, does this mean that marginal cost are equal to average variable cost?

Which of the following is a free good? Fresh water, forests in the northwestern United States, the advice of economists, or none of the above?

Explain how Monetarist economics views the role of markets and government intervention in fighting business cycles. Monetarist economics believes that the government should fol



How do I draw and interpret a combined ppc curve?

Volumes (mL) of Solution 0.20M 0.20M 0.010M 2% 0.20M 0.20M NaI NaCl Na2S2O3 Starch K2SO4 K2S2O8 ?2ml 2ml 2ml 1ml 2ml 2ml ?2ml 2ml 2ml 1ml 0ml 2ml ?4ml 0ml 2ml 1ml 2ml 2ml Time Exp