The intuition behind hotelling’s rule that prices of nonrenewable or depletable resources should rise at a rate equal to the market interest rate, comes from the fact that ‘when a resource is abundant, then consumption today does not involve an opportunity cost of foregone marginal profit in future, since plenty available for both today and the future. so when resources are traded in a competitive market are abundant, p=mc and marginal profit is 0. as resource becomes increasingly scarce, however, consumption today involves an increasingly high opportunity cost of foregone marginal profit in the future. so as resources become increasingly scarce relative to demand, marginal profit (p-mc) grows. the profit created by user scarcity=marginal user cost (muc)= price- marginal cost of extraction (p-mec). a. suppose there is an unlimited availability of a resource with inverse demand function p=12-0.8q and with marginal extraction cost mec= 4. suppose the time horizon is 2 periods. what quantity should be extracted in each period? b. suppose there is a nonrenewable resource with inverse demand function p= 12-0.8q and with mec= 4. the resource stock, s is finite and = 16 units. suppose the time horizon is 2 periods and the discount rate is r= 20%. what quantity should be extracted in each period? (hint: for scarce nonrenewable resource, the present value of marginal net benefits= p- mec also known as the muc should be equal across all periods and present value of marginal net benefits at time t= (pt- mect)/ (1+r)t )