From the Hotelling rule, we would expect that a perfectly competitive industry selling an exhaustible resource would:

A) sell more of it than a monopolist would in each period.
B) sell it all at once.
C) sell less of it than a monopolist would in each period.
D) not sell it.
E) not sell it unless interest rates were low.

Question

Mahira Irfan · Accepted Answer

Final Answer : A, Explanation :  The Hotelling rule suggests that in a perfectly competitive market, sellers of an exhaustible resource would aim to maximize their profits over time, leading to a faster rate of extraction and sale compared to a monopolist, who would restrict supply to increase prices and maximize profits over a longer period.

Definitions

Learning Objectives

Learning Objectives

Related questions