The citizens of Western are trying to decide how to allocate the extraction of (non- renewable resource) zoil over two periods. There are (total supply) 100 units of zoil located in Western. The marginal costs associated with extracting the zoil are given by MC1 = 40 and MC2 = 20. The discount rate is 10%. The demand of zoil in the period 1 is given by P = 100 - q. The demand for zoil in period 2 is P = 96 - q
a. Find the efficient allocations of oil in periods 1 and 2.
b. Illustrate your answer by the use of a diagram.