Tuesday, October 25, 2011

Why does marginal user cost change as a depletable resource is used through time?

What should be true about marginal user cost across time?Why does marginal user cost change as a depletable resource is used through time?It could be that the cost of extracting that resource becomes more difficult over time. For example, consider fishing in a lake, as the lake is abundant with fish, the marginal cost per fish is going to be low as you can easily catch a fish. When there are only a few fish left, it will be very costly to get those fish out. The same applies to mining minerals or oil.



There could be examples where marginal cost doesn't change over time, or even decreases over time, like if the first few units are the hardest to extract. I don't know of any theory that specifies it has to be one way or the other.