The graph below shows the potential ways to allocate a nonrenewable resource across two generations with a total supply of 300 million tons. 

The curve MNB1 shows the marginal net benefits in the current generation and PV[MNB2] shows the marginal net benefits in the second generation after discounting.

1. Suppose the first generation is ONLY interested in maximizing its own benefit. What is the quantity of consumption for the first generation?

2. Suppose now society like to maximize welfare for both generations. What should be the optimal quantity consumed in each period?

3. How much can the first generation consume before any user cost occurs?

4. Suppose new reserves are discovered. Now the total reserve increases from 300 million to 800 million. What should be the new optimal quantity consumed in each period?

Transcribed Image Text:

$ MNB1 PV[MNB2] A E B 60 183 240 300 Q2 300 240 117 60 %24 $ MNB1 PV[MNB2] A E B 60 183 240 300 Q2 300 240 117 60 %24

Answer rating: 100% (QA)

Renewable resources are the opposite Their supply replenishes naturally or can be sustained The sunl... View the full answer