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Answer :
Final answer:
The value of the marginal user cost in a two-period model with a total supply of 60 units and static efficient allocation of 25 units per period is the net benefit of using that resource in period 2, assuming constant extraction costs and no time preference.
Explanation:
In a two-period model with the total supply of the resource given as 60 units, and an efficient allocation of 25 units in both period 1 and period 2, marginal user cost (MUC) reflects the opportunity cost of using a unit of resource now rather than later.
To determine the value of MUC, we recognize that using a unit now prevents us from benefiting from its use in the future, which incurs a cost that equals the net benefit (price minus extraction cost) we give up in period 2. As the total amount of resource is fixed, the supply constraint suggests that any units consumed above the efficient allocation in period 1 have to be subtracted from period 2's allocation. In this case, given the static efficient allocation is at 25 units for each period, using one more unit in period 1 will result in one less unit in period 2, which would then imply the marginal user cost is at least the price (net benefit) of the resource in period 2,
assuming no time preference and extraction cost remains constant. The exact value for MUC will depend on additional information about the price and costs associated with the resource over the two periods.
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