Non renewable Resource
Consider an initial stock of 5000 tons of high grade ore. The demand function for this ore is P = 2400 – 0.2Q (Q is measured in tons/year), and the cost of extraction is constant at c = $200/ton. The discount rate is r = 0.10.
(a) Calculate Q0, Q1, p0, and p1.
(b) Recalculate Q0, Q1, p0, and p1 using a discount rate of r = 0.10 and a cost of c = $400/ton.
(c) Using a discount rate of r = 0.10 and a cost of c = $200/ton. What is the maximum stock level, Sˆ, for which the entire stock will be mined in one season? Show your work.