Question: Suppose there are two kinds of oil left underground oil
Suppose there are two kinds of oil left, underground oil and shale oil. The cost of extracting a unit of underground oil is $2/barrel, of shale oil $10/barrel. Once extracted from the earth, the two kinds of oil are identical. Explain, in terms a non-economist could understand, why it does not make sense to begin using the shale oil until all the underground oil has been exhausted.
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