Economics 20th Edition by Campbell McConnell ,Stanley Brue ,Sean Flynn

Exercise 9

ADVANCED ANALYSIS User cost is equal to the present value of future profits in the model presented in Figure 15.7. Will the optimal quantity to mine in the present year increase or decrease if the market rate of interest rises? Does your result make any intuitive sense? (Hint: If interest rates are up, would you want to have more or less money right now to invest at the market rate of interest?)