Project #4651 - Economic Theory

The question involves non-renewable resources and the Hotelling Rule. It's part of a college level course. I understand some of them might be theory/opinion questions, so please provide any input you can.

 

(A) If all the stocks of a non-renewable resource are owned by a monopolist as opposed to having many owners who each act as price-takers, and in each case the owners extract so as to maximize the discounted present value of their profits, qualitatively how does the ownership structure affect the time profiles of extraction and price?

 

(B) Suppose you own two deposits of coal; one lies at a shallow depth and has a low cost of extraction, while the other lies deep down and has a high cost of extraction. They both contain the same amount of coal. How would you exploit those two resources? Would you extract some coal from each deposit every year, or would you do something different? Describe the extraction strategy you would employ, and the underlying economic rationale.

 

(C) What has been the effect of the OPEC cartel on the world price of oil over the period between 1970 and now?

 

(D) From 1950 to the present, has the world price of oil risen approximately at the interest rate, as a simple version of the Hotelling rule would suggest?

 

(E) If not, explain some of the reasons why not? Are there other reasons beside the rise of OPEC?

Subject Business
Due By (Pacific Time) 04/22/2013 01:00 pm
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