Exhaustible and Recyclable Resources > Inefficiency of common property

Answer

  1. R1=40, R2=48; P1=240, P2=148; Q1=130, Q2=176.
  2. If the resource is common property, competition will drive R1 (profits) to zero and P1 will  fall until it is equal to MEC1.  The result: R1=0, P1=200, Q1=150.  That will leave Q2=156, which will mean P2=188 and R2=88.  Undesirable because MSS1=0 but PV(MSS2)=73.33; there would be gains in efficiency from switching some consumption from 1 to 2.
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Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 05/04/2006