Given the following:
- Inverse Demand Curve of P = 100 ½ Q
- Industry Supply Curve of MC = 10.
- Resource Constraint of 200 units.
a) Let the social discount rate equal 10%. Find the socially optimum output in both periods. Calculate the Dead Weight Loss of the unrestricted equilibrium.
b) Show and explain why the DWL rises as the private discount rate rises (relative to the social discount rate).
c) Let the resource constraint fall to 150 units. What is the Asset value now? Does this smaller constraint raise the DWLis s=10%? Show your work and give the intuition.
d) Find the equilibrium output and DWL if the industry cannot control access to the resource. Is the DWL higher than under Perfect Competition in (a). Discuss.
e) Explain why the DWL in (d) might fall as the resource constraint falls.