Microeconomics: Theory and Applications with Calculus, 4e

15.3 Exhaustible Resources

The meek shall inherit the earth, but not the mineral rights.

—J. Paul Getty

Discounting plays an important role in decision making about how fast to consume oil, gold, copper, uranium, and other exhaustible resources: nonrenewable natural assets that cannot be increased, only depleted. An owner of an exhaustible resource decides when to extract and sell it so as to maximize the present value of the resource. Scarcity of the resource, mining costs, and market structure affect whether the price of such a resource rises or falls over time.

When to Sell an Exhaustible Resource

Suppose that you own a coal mine. In what year do you mine the coal, and in what year do you sell it to maximize its present value? To illustrate ...