Question

Assume the following for a rare and valuable resource, Lithium.

1. The socially optimal quantity for every period is 42 tons.

2. There exist, in total, 150 tons of lithium in reserve.

3. There are 2-periods we like to consider in the allocation of this resource.

Please answer the following questions.

1. What is the socially efficient quantity for the 2 periods?

2. At the socially efficient quantity, did the 1st period incur any User Cost? if yes, provide the amount. If no, explain why there is no user cost.  

Answer 1

1)
Social efficient quantity in period 1=42 tons

Social efficient quantity in period 2=42 tons

Total quantity in 2 periods=42 tons

2)

Total social optimal quantity in two periods=42+42=84 tons

Total desired quantity is less than the available reserved. It means that resource is not scarce. It implies that efficient allocation of 42 tons does not effect the efficient allocation of 42 tons in second period.

It means that there is zero marginal user cost in period 1

MUC=0