Mine owners can plan with perfect foresight, information problems are extracted and resource owners are able to substitute resource extraction activities between generations without cost. It is also assumed in both models that technology is constant. There are no improvements in exploration, mining, processing, distribution nor improved management technology. Thus, productivity is constant. Implicit in this assumption is constant extraction costs.
Net price is the market price less extraction costs.
Extraction costs include the opportunity cost of resource extraction. The opportunity cost is the future benefits that could have been enjoyed had the resource been consumed at some time in the future. Hotelling predicted that as a resource becomes relatively scarce, its market price would rise more than the cost of production, consequently increasing the value of the net price. Thus, the net price reflects the relative scarcity of the resource. Consider the simplified static-equilibrium model of a competitive tin market.