Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder

Exercise 31

To calculate scarcity costs for any finite resource, a price at some future date must be assumed. Suppose, for example, that the real price of platinum will be $4,000 per ounce in 25 years.
a. If the real interest rate is 5 percent and no change is expected in the real costs of producing platinum over the next 25 years, what should the equilibrium price be today?
b. If the current cost of producing platinum is $100 per ounce, what are current scarcity costs?
c. What will scarcity costs be in 25 years?
d. Assuming that resource markets are in equilibrium and that real production costs for platinum continue to remain constant, what is the real equilibrium price of the metal in 50 years?