13.Optimal Extraction of Exhaustible Resource (101910)

13.Optimal Extraction of Exhaustible Resource (101910) -...

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The Optimal Extraction of a Nonrewable Resource: Introduction to the OPEC Pricing Game OPEC Game: developed by Borenstein, Bushnell, and Wolfram
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Overview Goal: If firms own an exhaustible/nonrenewable resource How do firms extract the resource over time in a profit-maximizing way? How will prices change over time if firms are doing this? Case 1: Perfect Competition • A firm in a perfectly competitive market (i.e. with no ability to influence the market price). • What happens (i.e. what the market equilibrium will look like) if a collection of firms behave like the firm in 1? Case 2: A Monopoly Supplier – Related to (but not exactly the same as) a cartel maximizing joint profit
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Recall Tradeoffs Between Money Now and Money Later Would you prefer $100 now or $105 next year? Reasons you might prefer fewer (nominal) dollars now? Time preference – I just prefer now to later Investment – May be able to invest $100 now in government bonds and receive more than $100 next year Thought question: Suppose your rich uncle left you a trust of $10,000 that you can collect in 10 years. How much must I pay
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13.Optimal Extraction of Exhaustible Resource (101910) -...

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