25 Marks Question C1 Static Efficiency Suppose that the dema

(25 Marks) Question C1: Static Efficiency Suppose that the demand for a depletable resource is given as follows Q=80-2P. where P and Q denote the market price and quantity extracted, respectively. The marginal extraction cost of the resource is 10+ Q. Note that resource extraction is undertaken in the current period only a) Suppose that the resource is scarce: only 20 units are available for production. What is the socially optimal level of output and price for the resource? Calculate the shadow price due to scarcit (5 Marks) b) Suppose that the resource is scarce: only 16 units are available for production What is the socially optimal level of output and price for the resource? Calculate (5 Marks) the shadow price You may want to depict the relationship on a graph) What is the monopolist\'s optimal level of output and price for the resource? c) Describe the relationship between the shadow price and the fixed supply. (Hint (5 Marks) d) Suppose that the resource is scarce: only 16 units are available for production Calculate the shadow price. (5 Marks) e) Using the information given in part (d), calculate the deadweight loss due to market power and scarcity (5 Marks)

Solution

The team was highly ineffective as shown in the video as a couple of them were unprepared of the agenda and absolutely no team work was displayed and a lot of interruptions and the team meeting ended abruptly.