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Homework 7 due Wed. Exam #3 Wed. Lowest gas prices in over 10 years 2 Pressures on transportation routes Reconfiguration of gas corridors TransCanada GTN Bison LNG Ruby LNG REX Kern River Expansion Fayetteville Express Gulf Crossing Midcon Express LNG FGT Expansion Flow increase Flow decrease 3 Substitution of gas for coal generation U.S. Coal Generation Supply Curve 2011 Source: Derived from SNL data 4 When the government allows private firms to extract minerals offshore or on public lands, two common means of sharing in profits • Bonus bidding – awards the highest bidder the right to extract and paid up-front • Production royalties – charges a per-ton royalty on each ton extracted and paid as long as the mineral is extracted How will this affect extraction over time? Would either be consistent with the efficient allocation? Suppose the price path and size of deposits are unknown. How would the risk be shared between the government and mining company, for the two different policies? MC $/Q AC MR Q