Suppose the following describe the marginal cost of extraction of a raw resource, the marginal cost of the recycled resource, and the demand for the resource (raw and recycled forms are perfect substitutes). • MC₁ = 150 + 2q1 MC₂ 200+ 192 • WTP = 400 - 1(91 +92) ● a. Draw a graph (clearly label the lines: Demand, MC1, MC₂) b. Determine the optimal amount of 9₁ and 92 (show your work). c. If consumer preferences changed such that demand became: WTP = 225 - 4(91 +92) what would be the optimal amount of 9₁ and 92? d. Also include a graph of the situation with the new demand.

Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter16: Labor Markets
Section: Chapter Questions
Problem 16.7P
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Suppose the following describe the marginal cost of extraction of a raw resource, the marginal cost of the recycled resource, and the demand for
the resource (raw and recycled forms are perfect substitutes).
MC₁
MC₂
• WTP =
●
=
-
150 +291
200 + 192
400 1(91 +92)
a. Draw a graph (clearly label the lines: Demand, MC₁, MC₂)
b. Determine the optimal amount of 91 and 92 (show your work).
c. If consumer preferences changed such that demand became:
WTP = 225 4(91 +92)
what would be the optimal amount of 9₁ and 92?
d. Also include a graph of the situation with the new demand.
Transcribed Image Text:Suppose the following describe the marginal cost of extraction of a raw resource, the marginal cost of the recycled resource, and the demand for the resource (raw and recycled forms are perfect substitutes). MC₁ MC₂ • WTP = ● = - 150 +291 200 + 192 400 1(91 +92) a. Draw a graph (clearly label the lines: Demand, MC₁, MC₂) b. Determine the optimal amount of 91 and 92 (show your work). c. If consumer preferences changed such that demand became: WTP = 225 4(91 +92) what would be the optimal amount of 9₁ and 92? d. Also include a graph of the situation with the new demand.
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