1. A firm is extracting a non-renewable resource in a competitive market. The marginal cost of extraction for the firm in all periods is c=$3. a. For each unit of the resource the firm extracts and sells they earn a scarcity rent. Explain in words what the scarcity rent represents. b. We observe that the real market price for the extracted resource in period t is $4. What is the scarcity rent earned by the firm in period t? c. We also observe that the real market price for the extracted resource in period t+1 is $4.25. What is the scarcity rent earned by the firm in period t +1.

1. A firm is extracting a non-renewable resource in a competitive market. The marginal cost of extraction for the firm in all periods is c=$3. a. For each unit of the resource the firm extracts and sells they earn a scarcity rent. Explain in words what the scarcity rent represents. b. We observe that the real market price for the extracted resource in period t is $4. What is the scarcity rent earned by the firm in period t? c. We also observe that the real market price for the extracted resource in period t+1 is $4.25. What is the scarcity rent earned by the firm in period t +1.

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter32: The Land Market And Natural Resources

Section: Chapter Questions

Problem 8E

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