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EEP1/ECON3 PROBLEM SET 6 NEW 2016 1. Assuming that the inverse demand function for shale gas in period 1 is P1 = 90 – q1 and the demand function in period 2 is half of the demand of Period 1 (i.e. future generations prefer to consume renewable resources). The Marginal Cost in Period 1 and Period 2 are both constant and equal to MC=$5. Furthermore, assume that the discount rate is 5%, and the total amount of the shale gas is 50 tons. (a) Find the Dynamic Efficient Allocation. Determine the current, future and total quantity of the depletable resource. Discuss. (b) Compute the optimal prices and Marginal User Cost (MUC) in both periods. (c) Construct a graph representing the dynamic efficient allocations in both periods. (d) Would the static and dynamic efficiency criteria yield the same answers for this problem? Why or why not? 2. There are two persons stranded on a desert island. Their respective annual demand for coconuts are as follows: