Suppose market demand for oil is Q(P) = 100 – 0. 75P where Q is billions of barrels (BBL)or oil per year and P is price per barrel where, MC(Q) = 7Q 2 – 3Q + 6 There is a total of 100 BBL of oil available to use in periods 0 (current year) and 1 (next year). Assume the interest rate is 5%. What is the revenue-maximizing quantities of oil to extract in each period? What are the corresponding prices? What is the CS, PS, SW in each period? Show that this solution maximizes social welfare.
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