Assume that you own an exhaustible resource that is sold competitively. The price of the resource is:P t + 1 - C = 1.08(P t -C),where t = 0 at the beginning of 2005, t + 1 - C = 1.08(P t - C), where t = 0 at the beginning of 2005, and It is also known that the demand for the resource is: Q = 1,000,000 - 25,000 P, where Q represents output in tons per year. If the beginning of 2005 price is $30 per ton and the marginal cost of extraction is $10 per ton, what will the price be at the end of 2009? What is the user cost of production in 2009? Is it different from the user cost for 2005? Explain. How much of the resource will be extracted in 2009? What is the market rate of interest on money? Explain. class=answers-bank-image d-inline rel=preload and t + 1 - C = 1.08(P t - C), where t = 0 at the beginning of 2005, and It is also known that the demand for the resource is: Q = 1,000,000 - 25,000 P, where Q represents output in tons per year. If the beginning of 2005 price is $30 per ton and the marginal cost of extraction is $10 per ton, what will the price be at the end of 2009? What is the user cost of production in 2009? Is it different from the user cost for 2005? Explain. How much of the resource will be extracted in 2009? What is the market rate of interest on money? Explain. class=answers-bank-image d-inline rel=preload It is also known that the demand for the resource is:Q = 1,000,000 - 25,000 P,where Q represents output in tons per year. If the beginning of 2005 price is $30 per ton and the marginal cost of extraction is $10 per ton, what will the price be at the end of 2009? What is the user cost of production in 2009? Is it different from the user cost for 2005? Explain. How much of the resource will be extracted in 2009? What is the market rate of interest on money? Explain.

Question

Assume that you own an exhaustible resource that is sold competitively. The price of the resource is:P t + 1  - C = 1.08(P t  -C),where t = 0 at the beginning of 2005, t + 1  - C = 1.08(P t  - C), where t = 0 at the beginning of 2005,    and    It is also known that the demand for the resource is: Q = 1,000,000 - 25,000 P, where Q represents output in tons per year. If the beginning of 2005 price is $30 per ton and the marginal cost of extraction is $10 per ton, what will the price be at the end of 2009? What is the user cost of production in 2009? Is it different from the user cost for 2005? Explain. How much of the resource will be extracted in 2009? What is the market rate of interest on money? Explain. class=answers-bank-image d-inline rel=preload > and t + 1  - C = 1.08(P t  - C), where t = 0 at the beginning of 2005,    and    It is also known that the demand for the resource is: Q = 1,000,000 - 25,000 P, where Q represents output in tons per year. If the beginning of 2005 price is $30 per ton and the marginal cost of extraction is $10 per ton, what will the price be at the end of 2009? What is the user cost of production in 2009? Is it different from the user cost for 2005? Explain. How much of the resource will be extracted in 2009? What is the market rate of interest on money? Explain. class=answers-bank-image d-inline rel=preload > It is also known that the demand for the resource is:Q = 1,000,000 - 25,000 P,where Q represents output in tons per year. If the beginning of 2005 price is $30 per ton and the marginal cost of extraction is $10 per ton, what will the price be at the end of 2009? What is the user cost of production in 2009? Is it different from the user cost for 2005? Explain. How much of the resource will be extracted in 2009? What is the market rate of interest on money? Explain.

Maria Anagnostopoulos · Accepted Answer

Final Answer : The price at the end of 2009 will be determined from equation (1).time(t) Net Pricebeginning 0 30 - 10 = 20end of 2005 1 P 1  - 10 = 21.600end of 2006 2 P 2  - 10 = 23.328end of 2007 3 P 3  - 10 = 25.194end of 2008 4 P 4  - 10 = 27.210end of 2009 5 P 5 - 10 = 29.390Thus, the end of 2009 price is  1  - 10 = 21.600 end of 2006 2 P 2  - 10 = 23.328 end of 2007 3 P 3  - 10 = 25.194 end of 2008 4 P 4  - 10 = 27.210 end of 2009 5 P 5 - 10 = 29.390 Thus, the end of 2009 price is   The user cost is the difference between the selling price of 39.39 and the marginal cost of extraction of 10.000 or 29.39/ton. This user price is higher in 2009 than in 2005 reflecting the fact that more of the resource has been extracted by 2009 than by 2005, and the value of each remaining unit has risen. At the price of $39.39 per ton, the quantity extracted in 2009 is: Q = 1,000,000 - 25,000(39.39) = 15,250 tons/year The market rate of interest on money is the same rate as the rate at which   increases each year. In this problem,   therefore,   per year. class=answers-bank-image d-inline rel=preload > The user cost is the difference between the selling price of 39.39 and the marginal cost of extraction of 10.000 or 29.39/ton. This user price is higher in 2009 than in 2005 reflecting the fact that more of the resource has been extracted by 2009 than by 2005, and the value of each remaining unit has risen.At the price of $39.39 per ton, the quantity extracted in 2009 is:Q = 1,000,000 - 25,000(39.39) = 15,250 tons/yearThe market rate of interest on money is the same rate as the rate at which  1  - 10 = 21.600 end of 2006 2 P 2  - 10 = 23.328 end of 2007 3 P 3  - 10 = 25.194 end of 2008 4 P 4  - 10 = 27.210 end of 2009 5 P 5 - 10 = 29.390 Thus, the end of 2009 price is   The user cost is the difference between the selling price of 39.39 and the marginal cost of extraction of 10.000 or 29.39/ton. This user price is higher in 2009 than in 2005 reflecting the fact that more of the resource has been extracted by 2009 than by 2005, and the value of each remaining unit has risen. At the price of $39.39 per ton, the quantity extracted in 2009 is: Q = 1,000,000 - 25,000(39.39) = 15,250 tons/year The market rate of interest on money is the same rate as the rate at which   increases each year. In this problem,   therefore,   per year. class=answers-bank-image d-inline rel=preload > increases each year. In this problem,  1  - 10 = 21.600 end of 2006 2 P 2  - 10 = 23.328 end of 2007 3 P 3  - 10 = 25.194 end of 2008 4 P 4  - 10 = 27.210 end of 2009 5 P 5 - 10 = 29.390 Thus, the end of 2009 price is   The user cost is the difference between the selling price of 39.39 and the marginal cost of extraction of 10.000 or 29.39/ton. This user price is higher in 2009 than in 2005 reflecting the fact that more of the resource has been extracted by 2009 than by 2005, and the value of each remaining unit has risen. At the price of $39.39 per ton, the quantity extracted in 2009 is: Q = 1,000,000 - 25,000(39.39) = 15,250 tons/year The market rate of interest on money is the same rate as the rate at which   increases each year. In this problem,   therefore,   per year. class=answers-bank-image d-inline rel=preload > therefore,  1  - 10 = 21.600 end of 2006 2 P 2  - 10 = 23.328 end of 2007 3 P 3  - 10 = 25.194 end of 2008 4 P 4  - 10 = 27.210 end of 2009 5 P 5 - 10 = 29.390 Thus, the end of 2009 price is   The user cost is the difference between the selling price of 39.39 and the marginal cost of extraction of 10.000 or 29.39/ton. This user price is higher in 2009 than in 2005 reflecting the fact that more of the resource has been extracted by 2009 than by 2005, and the value of each remaining unit has risen. At the price of $39.39 per ton, the quantity extracted in 2009 is: Q = 1,000,000 - 25,000(39.39) = 15,250 tons/year The market rate of interest on money is the same rate as the rate at which   increases each year. In this problem,   therefore,   per year. class=answers-bank-image d-inline rel=preload > per year.

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