As the rate of interest / discount rate increases, so does MUC; Present Value of MUC are equal over time. Now, draw the two-period residual demand graph, similar to Figure 1 where we replace aggregate for residual demand. The marginal cost formula represents the incremental costs incurred when producing additional units of a good or service. "extraction rate", but its units are physical quantities, such as tons or barrels, and not physical quantities per unit of time. It is a widely held belief among economists who specialize in commodity prices that the long-run market price of something is determined fundamentally by the marginal cost of production. The variable costs included in the calculation are labor and materials, plus increases in fixed costs, administration, overhead ,x 0 = 10, marginal extraction costs = C = 5, marginal cost of backstop = b = 10, ρ = 0. 7. In a dynamic efficient allocation, how would the extraction profile in the second version differ from the first? The marginal cost formula = (change in costs) / (change in quantity). The constant marginal extraction cost is the same in both periods in the first version and is equal to the marginal extraction cost in the first period of the second version. When is the backstop used? –The graph shows total marginal cost and marginal extraction cost. A chart will typically provide information regarding the cost of producing one good, the marginal cost ,and fixed costs. Then the depletable resource definition implies the following relationships in a discrete 3. Scarcity rent is the cost of "using up" a finite resource because benefits of the extracted resource are unavailable to future generations. The other is marginal extraction cost--the opportunity cost of resources employed in the extraction activity. So the total cost of … cost of extraction is an increasing function of cumulative extraction to date, but independent of the current flow rate of extraction. The marginal cost of oil is the expense of extracting an extra barrel of crude oil from below the ground. SOLOW AND WAN I 361. The marginal cost of oil. Hydraulic fracturing, or fracking, opened up more natural gas for production, but the technology added costs to the oil extraction process. When resources are scarce, greater current use diminishes future opportunities. Start studying Environmental Economics Midterm 2. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Let's say the cost of producing one good is \$250, and the marginal cost of producing another good is \$140. The total cost would be \$250 + \$140 = \$390. Marginal Extraction Cost the additional cost of extracting one more unit of a nonrenewable resource. A digression on efficiency THE BELL JOURNAL also leaves the gross outputs Q1 and Q2 unchange d. There is a saving Thus, the MARGINAL USER COST = Present Value of forgone opportunities at the margin. –With constant marginal extraction cost, total marginal cost (or the sum of marginal extraction costs and marginal user cost) will rise over … Efficiency is achieved when the resource price--the benefit society is willing to … Marginal User Cost The decreasing opportunity cost of consuming a good over time caused by inter-temporal scarcity: Total Marginal Cost the total cost of producing or consuming one more unit of a good. Marginal User Cost.