Asked by Lorena Edanol on Apr 28, 2024
Verified
A profit-maximizing company should extract a nonrenewable resource in the present up to the quantity where the:
A) selling price of the resource equals the extraction cost plus the user cost of the resource.
B) selling price of the resource equals the total cost plus the user cost of the resource.
C) selling price of the resource equals the extraction cost of the resource.
D) extraction cost of the resource equals the user cost of the resource.
Profit-Maximizing Company
A company whose primary goal is to make the largest possible profit from its operations.
Extraction Cost
The cost associated with the removal of resources or raw materials from the earth.
User Cost
The expense of utilizing a product or service, taking into account both the opportunity cost of choosing one alternative over others and the depreciation in value of the good as it is used.
- Identify the most favorable extraction rate for an exhaustible resource.
Verified Answer
BG
Britni GurganusMay 02, 2024
Final Answer :
A
Explanation :
A profit-maximizing company should extract a nonrenewable resource in the present up to the quantity where the selling price of the resource equals the extraction cost plus the user cost of the resource. At this point, the company will be earning the maximum profit possible while still taking into account the cost of extraction and the potential future costs of not having the resource available. Option A is therefore the best choice. Options B, C, and D do not take into account the user cost of the resource and do not accurately reflect the profit-maximizing strategy for extracting nonrenewable resources.
Learning Objectives
- Identify the most favorable extraction rate for an exhaustible resource.