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You wish to determine the dynamically efficient rate of extraction of a nonrenewable resource over two time periods, t0 and t1. Assume the simplest case, in which there are no externalities or other complicating factors. The demand function for the resource in each time period is constant and is given by: p=150-3.0q where p is price and q is the quantity consumed in the period (use q0 and q1). Marginal cost of extraction for the resource are constant at 30 (MEC = 30). Answer the questions with graphs and mathematically, show you work.
a) Using the static efficiency criterion what is the efficient level of q0 and q1 (and p0 and p1) Assume the resource is unlimited.
Hints: graphically graph the demand and MEC curves on the same graph, the efficient point is where they cross; mathematically, set MEC = p and solve for qi. Why are these two quantities (q0 and q1) the same?
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