Exercise #2
Consider the intertemporal allocation of a nonrenewable resource (NRR) between two periods, 1
and 2, with periods 1 and 2 being one year apart, i.e., n = 1. The inverse supply and the inverse
demand for this NRR are the same in both periods and are respectively given by $P_i = 10 + \frac{7Q_i}{10}$
and $P_i = 120 - \frac{4Q_i}{10}$ with $Q_i$ and $P_i$ denoting the quantity and the price in period i = 1, 2. The
discount rate is 10% per period and the quantity of the NRR is $Q_{max} = 179$.
Q9. Determine generation 1's marginal net benefit, $MNB_1$. You need to enter an equation.
Q10. Determine the static equilibrium price in period 1, i.e., the price $P_1$ when generation 1 does
not consider its impacts on generation 2.
Q11. Determine generation 2's marginal net benefit expressed in present value. You need to enter
an equation.
Q12. Determine the (dynamic) equilibrium price in period 1, i.e., the price $P_1$ when generation 1
considers its impacts on generation 2.
Q13. Determine social marginal cost curve in period 1. You need to enter an equation.
• Q14. Determine the unit depletion tax that should be imposed in period 1 to ensure the efficient
extraction of the NRR in period 1.
