Suppose that we need to develop a model to help us to allocate a resource between two time periods: Period 1 and Period 2. Demand can be characterized in both periods as: P = 20 – 2Q. In both periods the marginal cost of extracting the resource is constant at $4 per unit. The total quantity of the resource that is available to allocate between the two periods is 18 units (in other words, Q1 + Q2 <= 18). Assume that the discount rate is 5%. What is the marginal user cost?

Suppose that the discount rate changes to 10%, now. What is the change in marginal user cost?

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