Consider a coal mining company that can mine coal this year or next year. As expected future profits increase, the extraction quantity this year

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The concept of user cost is crucial here. When expected future profits increase, the opportunity cost of extracting coal this year (instead of waiting until next year) also increases. This is because by mining now, the company foregoes the potential higher profits it could earn in the future. This opportunity cost is referred to as the user cost. Therefore, as the user cost increases with higher expected future profits, the company is incentivized to decrease its extraction quantity this year to save resources for future extraction when it can earn more.

Consider a Coal Mining Company That Can Mine Coal This