The Energy Ministry of a medium-size country is trying to decide on expenditures for new resources that can be used to meet energy demand in the next decade. There are currently two major resources to...

The Energy Ministry of a medium-size country is trying to decide on expenditures for new resources that can be used to meet energy demand in the next decade. There are currently two major resources to meet energy demand. These resources are, however, exhaustible. Resource 1 has a cost of 5 per unit of demand met and a total current availability equal to 25 cumulative units of demand. Resource 2 has a cost of 10 per unit of demand met and a total current availability of 10 demand units. An additional resource from outside the country is always available at a cost of 16.7 per unit of demand met. Some investment is considered in each of Resources 1 and 2 to discover new supplies and build capital. Resource 1 is, however, elusive. A unit of investment in new sources of Resource 1 yields only 0.1 demand unit of Resource 1 with probability 0.5 and yields 1 demand unit with probability 0.5 . For Resource 2, investment is well known. Each unit of investment yields a demand unit equivalent of

The ministry wants to minimize expected costs of meeting demands in the current and following decade assuming that the results of Resource 1 investment will only be known when the current decade ends. Next-decade costs are discounted to 60% of their future real values (which should not change). Resource 2. Cumulative demand in the current decade is projected to be 10 , while demand in the next decade will be 25