Assume That You Own an Exhaustible Resource That Is Sold

question 11

Essay

Assume that you own an exhaustible resource that is sold competitively. The price of the resource is:
P_{t + 1} - C = 1.08(P_t -
C),
where t = 0 at the beginning of 2005,
and
It is also known that the demand for the resource is:
Q = 1,000,000 - 25,000 P,
where Q represents output in tons per year. If the beginning of 2005 price is $30 per ton and the marginal cost of extraction is $10 per ton, what will the price be at the end of 2009? What is the user cost of production in 2009? Is it different from the user cost for 2005? Explain. How much of the resource will be extracted in 2009? What is the market rate of interest on money? Explain.

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Definitions:

Ethical Theory

A branch of philosophy that investigates the principles of right and wrong conduct, moral life, and moral judgments.

Ethical Relativism

The belief that moral standards vary between individuals, cultures, or situations and that there are no absolute universal moral standards.

Self-Preservation

The protection of oneself from harm or destruction, often considered a basic instinct in humans and animals.

Situational Ethics

is an ethical framework suggesting that the rightness or wrongness of an action depends on the specific context, rather than on universal moral laws.