Asked by Frank pelicano on Jun 25, 2024
Verified
From the Hotelling rule, we would expect that a perfectly competitive industry selling an exhaustible resource would:
A) sell more of it than a monopolist would in each period.
B) sell it all at once.
C) sell less of it than a monopolist would in each period.
D) not sell it.
E) not sell it unless interest rates were low.
Hotelling Rule
A theory in economics that states the net price (price minus extraction costs) of a non-renewable resource should increase at the rate of interest over time.
Exhaustible Resource
A natural resource that can be depleted and is not replenished over a short geological time frame.
- Clarify the Hotelling rule along with its applicability in strategies concerning pricing and conservation for monopolistic firms versus competitive market structures.
Verified Answer
MI
Mahira IrfanJun 30, 2024
Final Answer :
A
Explanation :
The Hotelling rule suggests that in a perfectly competitive market, sellers of an exhaustible resource would aim to maximize their profits over time, leading to a faster rate of extraction and sale compared to a monopolist, who would restrict supply to increase prices and maximize profits over a longer period.
Learning Objectives
- Clarify the Hotelling rule along with its applicability in strategies concerning pricing and conservation for monopolistic firms versus competitive market structures.
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