Week 2 – Assignment 1
Efficient Allocation
In the numerical example given in the text, the inverse demand function for the depletable resource is P = 8 – 0.4q and the marginal cost of supplying it is $4. (a) If 40 units are to be allocated between two periods, in a dynamic efficient allocation, determine how much would be allocated to the first period and how much to the second when the discount rate is zero. (b) Calculate the efficient price for the two periods. (c) Calculate the marginal user cost in each period.
Be sure to show all necessary calculations and provide an explanation of how you completed each calculation.
