Q3. Figures 7.1 and 7.2 represent a case where the backstop (marginal = average) production cost is a constant, b. For this question, suppose instead that the backstop cost equals . by3, so the marginal cost of the backstop equals by (instead of being constant at b). As before, average extraction cost of non-renewable resource is constant at C. (a) What is the backstop supply function and what is the backstop inverse supply function in this case? (b) Denote the inverse demand for energy (w = y + z) as p = D (w). Draw a linear demand function and set C = 5. Include in this figure the backstop supply function, assuming that b is such that the resource is not worthless. (Depending on the magnitude of b, the resource is or is not worthless; the point of the question is for students to think about the relation between b and the value of the resource.) Briefly explain your figure - in how you drew the figure . (c) Under the assumptions of part (b), might there be an initial phase during which the resource supplies the entire market (as is the case when the backstop marginal cost is constant)? Explain. (d) Describe the evolution, over time, of the backstop market share. (Refer to Chapter 7.3.1.)