The rule for dynamic efficiency (a.k.a. Hotelling's Rule):

The rule for dynamic efficiency (a.k.a. Hotelling's Rule):

• Requires that the surplus received on the last unit sold in year 0 must equal the PDV of the surplus received on the last unit sold in year 1.

• When this condition holds, the PDV of total surplus over the two years will be maximized.

• The dynamically efficient price rises each year at a rate equal to the discount rate.

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