Question

Aramco (the Saudi company headquartered  in Dhahran) has 30 barrels of oil. The marginal cost of extracting a barrel is given by MC(q)= 3q.

This means that 3 is the cost of extracting unit number one, and 6 is the cost of extracting unit number two, and 9 is the cost of extracting unit number 3. Assume that we live in a world of two periods.

1. How would Aramco sell those 30 units if the price P=100 in every period and the interest r=0.

2. How would Aramco sell those 30 units if the price P=100 in every period and the interest r=0.05 (five percent). And what about if the interest rate is r=0.1 (ten percent)

3. How would Aramco sell those 30 units if the price P=100 in period 1 and P=105 in period 2, and the interest r=0.05 (five percent).

Answer 1