Project 3

# Project 3 - Efficiency 4.What would be the number of...

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Project 3 For this project we will be working with the two-period model of oil extraction and use developed in class.Recall the following important assumptions about this market: Market demand for oil is the same in both periods. Inverse demand is given by: P = D1 - D2 * q Where: D1 is the inverse demand vertical intercept, here = \$8.00 D2 is the inverse demand slope, here = 0.4 . Marginal cost of oil extraction is constant at \$2.00 per barrel. There is a total stock of 20 barrels oil that can be used. The interest rate is 10%. 1.What would be the number of barrels extracted in each period if the Static Efficiency Criterion were used to determine extraction in each period? . . 2.Calculate and show the following on Figures 1a and 1b with Static Efficiency: . a. Total Benefits in period 1 b. Total Cost in Period 1 c. Net Benefits in Period 1 . d. Total Benefir in Period 2 e. Total Cost in Period 2 f. Net Benefits in Period 2 . . 3.Calculate the Present Value of Net Benefits (Period 1 + Period 2) with Static

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Unformatted text preview: Efficiency. . . 4.What would be the number of barrels extracted in each period if the Dynamic Efficiency Criterion were used to determine extraction in each period? . . 5. Calculate and show the following on Figures 2a and 2b with Dynamic Efficiency: . a. Total Benefits in period 1 b. Total Cost in Period 1 c. Net Benefits in Period 1 . d. Total Benefir in Period 2 e. Total Cost in Period 2 f.Net Benefits in Period 2 . . 6.Calculate the Present Value of Net Benefits(Period 1 + Period 2) with Dynamic Efficiency. . Extra Credit: Who benefits from use of the Dynamic Efficiency Criterion as compared with the Static Efficiency Criterion. Consider: Consumers in Period 1, Consumers in Period 2, Producers in Period 1, and Producers in Period 2. (Do not calculate present value figures for this.) Use these Graphs for the Static Efficiency Criterion Analysis Use these Graphs for the Dynamic Efficiency Criterion Analysis...
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Project 3 - Efficiency 4.What would be the number of...

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