Describe hotellings contribution to natural resource economy

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Assignment:

Suppose that oil industry is competitive and that everyone in the industry knows that at a particular date in the future, say T years from now, a backstop technology will become available at a marginal cost of £PB. The interest rate is ρ, which is constant over time.

. How will the paths of the oil price, demand, and extraction rate over time look like in the period before T? Explain your reasoning. Find equations where appropriate.

. Describe Hotelling's contribution to natural resource economics. Would you expect it to be exactly right in practice? Why or why not? Discuss how it can be extended to make it more realistic.

Reference no: EM133441382

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