Question: The demand curve for a non - renewable resource is given by P = 300 0.25q and the supply curve is given by P =

The demand curve for a non-renewable resource is given by P = 300 0.25q and the supply curve is given by P = 20. The total stock of the resource is 1000 and the discount rate is 4%

a. Assuming that the entire resource will be extracted in two periods, use the Hotelling's rule to determine the quantities that will be extracted in each period.

b. Calculate the net price of the resource in each period. Confirm that your answers are consistent with Hotelling's rule.

c. Using a suitable well-labelled diagram, explain how the dynamically efficient allocation of the fixed resource stock will change if the discount rate decreases?

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