Suppose the marginal social benefits curve for crude oil is MSB = 60 – 0.6Q and the marginal total cost curve is MTC = 20 + 1.4Q, where Q denotes the dynamically efficient quantity of barrels to be extracted from an Albertan oil field (in millions), on an annual basis.1 Suppose that the current quantity extracted is 30 million barrels. Is this the dynamically efficient quantity? Explain.
Now suppose that the marginal current cost (MCC) of extraction is given by MCC = 20 + 0.4Q. Illustrate the MSB, MTC, and MCC on a graph. At the dynamically efficient quantity, what is the marginal resource rent (MRR) and the user cost (UC)? Are they the same as the MRR and UC at Q=30? Explain.