Question: Question 1. Marginal User Cost (25 points) First, consider the efficient extraction of a non-renewable resource that has (i) constant marginal extraction cost and (ii)

extraction of a non-renewable resource that has (i) constant marginal extraction cost

Question 1. Marginal User Cost (25 points) First, consider the efficient extraction of a non-renewable resource that has (i) constant marginal extraction cost and (ii) stable demand (marginal benefits) over time. Assume that the non-renewable resource is exhausted along an efficient extraction path. This is "Model 1" from Lecture 9. Please answer the following: a. How does marginal user cost (MUC) change over time along the efficient extraction path? Explain your answer. (5 points) b. How does the quantity of the resource extracted and consumed change along the efficient extraction path? (5 points) c. What is the relationship between the choke price on the marginal benefits (demand) curve, marginal extraction costs, and marginal user cost for the very last unit of the resource extracted and consumed in the final period of the planning horizon? (5 points)Second, consider the efficient extraction of a non-renewable resource that has (i) endogenously increasing marginal extraction cost and (ii) stable demand (marginal benefits) over time. Assume that the non-renewable resource is not exhausted along an efficient extraction path. This is "Model 5" from Lecture 9. Please answer the following: d. How does marginal user cost (MUC) change over time along the efficient extraction path? Explain your answer. (5 points) e. What is the relationship between the choke price on the marginal benefits (demand) curve, marginal extraction costs, and marginal user cost for the very last unit of the resource extracted and consumed in the final period of the planning horizon? (5 points)

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