A large offshore oil field has attracted the interest of many oil drillers. The oil field is not owned by anyone, and any firm that wants to drill for oil is free to do so. Any firm drilling for oil will be able to pump oil from the field, but as the number of drillers increases, the yield from each oil well decreases since they are all pumping from the same fixed stock of oil. The oil field is therefore a classic common property resource. The price of oil is $97 per barrel. The private marginal cost of drilling and extracting oil from the oil field is MC = 39 + Q. The marginal social cost of extracting oil from the field is MSC = 44 + 1,7Q. In each case Q is the number of barrels of oil extracted in thousands of barrels per day. The socially efficient amount of oil to extract per day is 31.18 thousand barrels. (Enter your response as a real number rounded to two decimal places.) If entry to the oil field is unrestricted, the actual amount of oil that will be extracted per day is 58 thousand barrels. (Enter your response as a real number rounded to two decimal places.) This common property resource is overused because the actual amount of oil pumped exceeds the socially efficient amount by 58 - 31.18 = 26.82 thousand barrels per day. The social cost of this overuse is $ thousand per day. (Enter your response as a real number rounded to two decimal places.)
A large offshore oil field has attracted the interest of many oil drillers. The oil field is not owned by anyone, and any firm that wants to drill for oil is free to do so. Any firm drilling for oil will be able to pump oil from the field, but as the number of drillers increases, the yield from each oil well decreases since they are all pumping from the same fixed stock of oil. The oil field is therefore a classic common property resource. The price of oil is $97 per barrel. The private marginal cost of drilling and extracting oil from the oil field is MC = 39 + Q. The marginal social cost of extracting oil from the field is MSC = 44 + 1,7Q. In each case Q is the number of barrels of oil extracted in thousands of barrels per day. The socially efficient amount of oil to extract per day is 31.18 thousand barrels. (Enter your response as a real number rounded to two decimal places.) If entry to the oil field is unrestricted, the actual amount of oil that will be extracted per day is 58 thousand barrels. (Enter your response as a real number rounded to two decimal places.) This common property resource is overused because the actual amount of oil pumped exceeds the socially efficient amount by 58 - 31.18 = 26.82 thousand barrels per day. The social cost of this overuse is $ thousand per day. (Enter your response as a real number rounded to two decimal places.)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:A large offshore oil field has attracted the interest of many oil drillers. The oil field is not owned by anyone, and any firm that wants to drill for oil is free to do so. Any firm drilling for
oil will be able to pump oil from the field, but as the number of drillers increases, the yield from each oil well decreases since they are all pumping from the same fixed stock of
oil. The oil field is therefore a classic common property resource.
The price of oil is $97 per barrel.
The private marginal cost of drilling and extracting oil from the oil field is MC = 39 + Q.
The marginal social cost of extracting oil from the field is MSC = 44 + 1,7Q.
In each case Q is the number of barrels of oil extracted in thousands of barrels per day.
The socially efficient amount of oil to extract per day is 31.18 thousand barrels. (Enter your response as a real number rounded to two decimal places.)
If entry to the oil field is unrestricted, the actual amount of oil that will be extracted per day is 58 thousand barrels. (Enter your response as a real number rounded to two decimal
places.)
This common property resource is overused because the actual amount of oil pumped exceeds the socially efficient amount by 58 - 31.18 = 26.82 thousand barrels per day. The
social cost of this overuse is $ thousand per day. (Enter your response as a real number rounded to two decimal places.)
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