AlphaGas is a retail station which sells gasoline to consumers at the per-gallon price Pr. It is the only gasoline station in town. Inverse demand for gasoline from retail customers is Pr = 20-2Q¹. AlphaGas purchases gasoline from the local refiner, OmegaGas, at the per-gallon wholesale price of PW. Denote the quantity of wholesale gasoline sold to AlphaGas as QW. This is AlphaGas' only input, and its production function is given by Q=f(Q)=Qw. The cost function is therefore given by C(Q¹)=PW Q¹. (a) Find the level of production, Q', that maximizes the profits of AlphaGas. (b) Use your answer from (a) to form the demand curve for OmegaGas. (c) Sunnose that Omega's cost of refining is $4 per gallon Using your answer from (h) to find the
AlphaGas is a retail station which sells gasoline to consumers at the per-gallon price Pr. It is the only gasoline station in town. Inverse demand for gasoline from retail customers is Pr = 20-2Q¹. AlphaGas purchases gasoline from the local refiner, OmegaGas, at the per-gallon wholesale price of PW. Denote the quantity of wholesale gasoline sold to AlphaGas as QW. This is AlphaGas' only input, and its production function is given by Q=f(Q)=Qw. The cost function is therefore given by C(Q¹)=PW Q¹. (a) Find the level of production, Q', that maximizes the profits of AlphaGas. (b) Use your answer from (a) to form the demand curve for OmegaGas. (c) Sunnose that Omega's cost of refining is $4 per gallon Using your answer from (h) to find the
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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