Inverse demand in each period is . The interest rate is zero and storage costs per unit carried from period 1 to period 2. Period-2 harvest is 60 or 140 with equal probability. Storers are competitive and risk neutral. (a) With period-1 harvest , find equilibrium inventory , , and the one-period futures price . Is the market at full carry? (b) Repeat with . (c) Interpret (a) and (b) with Propositions 10.3 and 10.4.
M10 · Problem 3 ★★ Check
A two-period storage equilibrium
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