Select all that apply to the Hotelling\'s Rule a.) The price of a nonrenewable r

ID: 1173585 • Letter: S

Question

Select all that apply to the Hotelling's Rule

a.) The price of a nonrenewable resource will grow based on the interest rate.

b.) Opportunity cost is important when deciding whether to extract or leave a nonrenewable resource in the ground.

c.) The price of a nonrenewable resource falls as the resource is depleted.

d.) If the price of a nonrenewable resource grows faster than the interest rate then there is incentive to extract resource quickly

e.) nonrenewable rent is maximized when the growth of the resource price equals the interest rate.

Explanation / Answer

Hotelling rule is all about deciding whether to extract the resource now or do so in the future. It’s optimal output exists where price equals interest rate. Price grows basis on the interest rate otherwise opportunity cost of not extracting or extracting decreases or increases accordingly.

Statement A, B and E hold true.

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Select all that apply to the Hotelling\'s Rule a.) The price of a nonrenewable r

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Explanation / Answer

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