Question: Consider a two-period dynamic resource allocation problem where the efficient resource allocation implies a market price of $8 in the first period (ie., P,=8). Assuming
Consider a two-period dynamic resource allocation problem where the efficient resource allocation implies a market price of $8 in the first period (ie., P,=8). Assuming that the constant marginal extraction cost in both periods is $4 and that the social discount rate is 25% (.e., r=0.25), the socially efficient undiscounted market price in the second period (P) must be (Hint: use the efficiency condition.)
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