Our theory of the pricing of exhaustible resources concludes that the prices of such resources should increase (relative to prices of other goods) at a rate equal to the real rate of interest. What does this conclusion assume about the costs involved in actually producing natural resources?
a. That they are constant
b. That they increase at the overall rate of inflation
c. That they also increase relative to prices of other goods at the real rate of interest
Explain your answer and discuss how resource prices would be expected to move if your assumption were not true.