The growth over time in the spread between price and marginal cost of an exhaustible resource is equal to
A) zero.
B) one.
C) the interest rate.
D) the present value of the reserves.

Question

Quizplus · Accepted Answer

The growth over time in the spread between price and marginal cost of an exhaustible resource is equal to the interest rate, according to the Hotelling Rule. This principle states that the net price (price minus marginal cost) of a non-renewable resource will increase at the rate of interest over time, reflecting the opportunity cost of depleting the resource now rather than later.

The Growth Over Time in the Spread Between Price and Marginal