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9 - 02:20 Hotelling'srule:netpricepath=functionoftime, (...

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Picture 3 02:20 Hotelling's rule:  net price path = function of time, maximizing rent while fully  extracting a non-renewable natural resource (by the time it reaches terminal  price).  Maximum rent aka. “Hotelling rent “or “scarcity rent”: reflects the increasing  scarcity of the resource In an efficient exploitation of a non-renewable resource, % change in net-price  per unit of time should equal the discount rate P – C = (P – C)e -rt P’(t)/P(t) =  δ when P(t) is the unit profit at time t and   is the discount rate. δ Stock S=: must exhaust by max. price, substitute starting price If increase P, then shifts up = unsold supply Competing (substitute) non-renewable resources with different costs of extraction                                C=oil, CH=coal Use S= for backstop price of coal, work backward to initial price of coal = 
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