Consider a wine maker who has put her wine in bottles. The question is whether to store the wine for a marginal cost of 1 per year or to sell the wine today at a price of 10. If the interest rate is 6, how much must the price of the wine increase in the next year to justify storing it?
A) 1.66
B) 1.27
C) 0.72
D) 0.45
Question 2
The spread between price and marginal cost of an exhaustible resource must grow by the rate of interest so that
A) resource owners earn a profit.
B) resource owners are willing to sell some of the resource in the future.
C) the price of the resource remains constant in real terms.
D) the marginal cost of extracting the resource declines.
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