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Question: 1. Conside rthe general effect of the discount rate on the dynamic efficient allocation of a depletable resource across time. Suppose we have two versions of the two-period model discussed in Chapter 6. The two versions are identical except for the fact that the second version involves alower discount than that of the first version.

a. What effect would the higher discount rate have on the allocation between the two periods and the magnitude of the present value of the marginal user cost?

b. Explain the intuition behind your results.

Microeconomics, Economics

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