1.Consider a non-renewable resource with a demand function Q = 500-4P. The marginal cost of extraction is constant over time at $50. The discount rate is 0.10. There are 800 units of resources available.

a)Construct the optimal extraction path for this resource. How many periods does it take toexhaust the resource? (Hint: Start by using the choke price to determine the price in the "final"time period, calculate the rent, use the fact that the rent increases at the rate of interest to solve for the price in the period before the final time period, and so on to fill in the table that was discussed in class. Use a spreadsheet-unless you really like writing out all these calculations. ). (10 points)

b)What if the discount rate increases to 20%? What is the impact on the optimal extraction path (price path, quantity path, time to exhaustion)? (10 points)