Supplementary Exercises > Exhaustible and Recyclable Resources

Inefficiency of common property

Consider managing an exhaustible resource with the following features over two periods:

Please answer the following questions:
  1. Determine the optimal allocation of the resource between the two periods. Solve for the prices, quantities, and royalties in each period (show all your work). Discuss the patterns in prices and royalties over time.
  2. Now suppose the resource is common property and is produced by price-taking firms in a competitive market. What quantity will be supplied in each period? What will the price be in each period? Explain why this allocation is undesirable.

 

When you're done, you can check your work via the link below:

Site Index | Zoom | Admin
URL: https://wilcoxen.maxwell.insightworks.com/pages/2263.html
Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 05/10/2006