Suppose there are 1 billion tons of titanium dioxide in the world and two periods: sooner and later. What we use sooner, we can't use later. Titanium is sometimes used to build rocket ships and road bikes among other light and durable products. With Q representing the quantity of titanium used sooner, the marginal benefit (net of any costs) from titanium used sooner is MB_sooner = .6 billion - Q. The (net) marginal benefit from titanium used later, MB_later, is constant at .6 billion. That is, every unit of titanium used later has a marginal benefit of .6 billion.
a) Illustrate this situation with a two-period model (as shown in the textbook) that includes both marginal benefit curves, labeled MB_sooner and MB_later.
b) If we don't discount benefits received later, what is the dynamically efficient quantity to use sooner? _______.
c) If the present value of benefits received later is one-half of their value later, what is the dynamically efficient quantity to use in each period? Sooner ________ Later ________
d) If we have an infinite discount rate for benefits received later, what is the dynamically efficient quantity to use in each period? Sooner ________ Later ________

Question

Suppose there are 1 billion tons of titanium dioxide in the world and two periods: sooner and later. What we use sooner, we can't use later. Titanium is sometimes used to build rocket ships and road bikes among other light and durable products. With Q representing the quantity of titanium used sooner, the marginal benefit (net of any costs) from titanium used sooner is MB_sooner = .6 billion - Q. The (net) marginal benefit from titanium used later, MB_later, is constant at .6 billion. That is, every unit of titanium used later has a marginal benefit of .6 billion.

a) Illustrate this situation with a two-period model (as shown in the textbook) that includes both marginal benefit curves, labeled MB_sooner and MB_later.
b) If we don't discount benefits received later, what is the dynamically efficient quantity to use sooner? _______.
c) If the present value of benefits received later is one-half of their value later, what is the dynamically efficient quantity to use in each period? Sooner ________ Later ________
d) If we have an infinite discount rate for benefits received later, what is the dynamically efficient quantity to use in each period? Sooner ________ Later ________

Quizplus · Accepted Answer

The Answer of Suppose there are 1 billion tons of titanium dioxide in the world and two periods: sooner and later. What we use sooner, we can't use later. Titanium is sometimes used to build rocket ships and road bikes among other light and durable products. With Q representing the quantity of titanium used sooner, the marginal benefit (net of any costs) from titanium used sooner is MB_sooner = .6 billion - Q. The (net) marginal benefit from titanium used later, MB_later, is constant at .6 billion. That is, every unit of titanium used later has a marginal benefit of .6 billion. a) Illustrate this situation with a two-period model (as shown in the textbook) that includes both marginal benefit curves, labeled MB_sooner and MB_later. b) If we don't discount benefits received later, what is the dynamically efficient quantity to use sooner? _______. c) If the present value of benefits received later is one-half of their value later, what is the dynamically efficient quantity to use in each period? Sooner ________ Later ________ d) If we have an infinite discount rate for benefits received later, what is the dynamically efficient quantity to use in each period? Sooner ________ Later ________

Suppose There Are 1 Billion Tons of Titanium Dioxide in the World