The marginal cost formula represents the incremental costs incurred when producing additional units of a good or service. Then the depletable resource definition implies the following relationships in a discrete cost of extraction is an increasing function of cumulative extraction to date, but independent of the current flow rate of extraction. Scarcity rent is the cost of "using up" a finite resource because benefits of the extracted resource are unavailable to future generations. 7. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Marginal User Cost. So the total cost of … The variable costs included in the calculation are labor and materials, plus increases in fixed costs, administration, overhead When resources are scarce, greater current use diminishes future opportunities. Let's say the cost of producing one good is $250, and the marginal cost of producing another good is $140. As the rate of interest / discount rate increases, so does MUC; Present Value of MUC are equal over time. The marginal cost of oil. 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. Start studying Environmental Economics Midterm 2. SOLOW AND WAN I 361. The marginal cost of oil is the expense of extracting an extra barrel of crude oil from below the ground. "extraction rate", but its units are physical quantities, such as tons or barrels, and not physical quantities per unit of time. –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. The marginal cost formula = (change in costs) / (change in quantity). The total cost would be $250 + $140 = $390. Now, draw the two-period residual demand graph, similar to Figure 1 where we replace aggregate for residual demand. In a dynamic efficient allocation, how would the extraction profile in the second version differ from the first? Thus, the MARGINAL USER COST = Present Value of forgone opportunities at the margin. 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 Extraction Cost the additional cost of extracting one more unit of a nonrenewable resource. 3. Efficiency is achieved when the resource price--the benefit society is willing to … A digression on efficiency THE BELL JOURNAL also leaves the gross outputs Q1 and Q2 unchange d. There is a saving When is the backstop used? The other is marginal extraction cost--the opportunity cost of resources employed in the extraction activity. 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