Suppose biofuels were available in infinite supply at a price of $30 per unit of oilequivalent....
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Suppose biofuels were available in infinite supply at a price of $30 per unit of oilequivalent. Inverse demand for oil in a competitive market is P=705Q, where Q is billions of barrels (BBL) of oil per year and P is price per barrel. The marginal cost of extracting the oil is zero. There is a total of 13 BBL of oil available to use in periods 0 and 1. Assume the interest rate is 6%. Answer the following questions using the information above. a. Find the social welfare maximizing prices for periods 0 and 1 when there is a backstop technology, State the equimarginal principle that you used to find the revenue maximizing solution. Round your answers to two decimal places. (Hint: compare the present value price of the backstop technology with the present value price without the backstop technology to find P, and P₁.) (Hint 2: you have already found the future value price without the backstop technology in question 2.) b. What are the corresponding quantities in each period? Refer to part a. How much of the biofuel will be produced? Round your answers to two decimal places. Suppose biofuels were available in infinite supply at a price of $30 per unit of oilequivalent. Inverse demand for oil in a competitive market is P=705Q, where Q is billions of barrels (BBL) of oil per year and P is price per barrel. The marginal cost of extracting the oil is zero. There is a total of 13 BBL of oil available to use in periods 0 and 1. Assume the interest rate is 6%. Answer the following questions using the information above. a. Find the social welfare maximizing prices for periods 0 and 1 when there is a backstop technology, State the equimarginal principle that you used to find the revenue maximizing solution. Round your answers to two decimal places. (Hint: compare the present value price of the backstop technology with the present value price without the backstop technology to find P, and P₁.) (Hint 2: you have already found the future value price without the backstop technology in question 2.) b. What are the corresponding quantities in each period? Refer to part a. How much of the biofuel will be produced? Round your answers to two decimal places.
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Related Book For
Intermediate Microeconomics and Its Application
ISBN: 9780324599107
11th edition
Authors: walter nicholson, christopher snyder
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