Joe lives in the Upper Peninsula of Michigan, far away from civilization. He own

Question

Joe lives in the Upper Peninsula of Michigan, far away from civilization. He owns a pile of firewood (2,000 pounds) that he uses for heating and cooking. In two years, he will move to Buenos Aires, and he cannot take the firewood with him. Suppose he cannot sell it to anyone, because he lives very far from other people (i.e., the firewood will have no value once he moves). He is choosing how to allocate the firewood between this year (t=0) and next year (t=1). Marginal extraction costs are zero. His annual marginal benefits of burning firewood are given by P = 1000 1 2Q, where P and Q are the price and quantity.

a) Joe is very impatient, and his discount rate is 10%. How much should he burn this year?

b) Suppose Joe were less impatient, such that his overall discount rate were 5%. Now how much should he use this year?

c) Now Joe decides to delay his move to Buenos Aires until three years from now (i.e. in t=3). That means he can allocate the firewood over three periods, t=0, t=1 and t=2. If his discount rate is 5%, what is the dynamically-efficient allocation in each of the three periods?

Explanation / Answer

By making the ball hang from the ceiling and observing when ,ball is at rest, the angle with the vertical that the string forms. This will give the direction of acceleration due to gravity at that location. Which can be used to locate the location as different locations have different directions due to earth's Oblate Spheroid shape.

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