Case Study: Consider the following producer theory model for a single firm producing oil, and the aggregate supply and demand. 1. 2. 3. 4. 5. 6. 7. Exercise 8. What is the firm's equilibrium price and quantity? What is the firm's profit at this level? What will occur in the long-run for this market? Explain in words. What is the long run Price in this market, quantity produced by a firm and level of profit. Indicate P and quantity in the long run on your graph. Assume the market is at long-run equilibrium. Use the producer theory model from above to show the impact of Iran's entry, assume this brings the market to a price of $27. What is the new equilibrium price and quantity for the firm? What are the firms profits at this price? What does this excerpt suggest about how firms will behave in the short run? What will happen in the long run? 238389928022" Price/Barrel (S) 70 65 60 55 50 45 15 10 5 0 ATC 2883899280852 AVC 35 15 5 $1 E₁ D 0 02468 10 12 14 16 18 20 22 24 26 28 30 0 20 40 60 80 100 120 140 160 180 2 Millions of Barrels/Day Millions of Barrels/Day

Case Study: Consider the following producer theory model for a single firm producing oil, and the aggregate supply and demand. 1. 2. 3. 4. 5. 6. 7. Exercise 8. What is the firm's equilibrium price and quantity? What is the firm's profit at this level? What will occur in the long-run for this market? Explain in words. What is the long run Price in this market, quantity produced by a firm and level of profit. Indicate P and quantity in the long run on your graph. Assume the market is at long-run equilibrium. Use the producer theory model from above to show the impact of Iran's entry, assume this brings the market to a price of $27. What is the new equilibrium price and quantity for the firm? What are the firms profits at this price? What does this excerpt suggest about how firms will behave in the short run? What will happen in the long run? 238389928022" Price/Barrel (S) 70 65 60 55 50 45 15 10 5 0 ATC 2883899280852 AVC 35 15 5 $1 E₁ D 0 02468 10 12 14 16 18 20 22 24 26 28 30 0 20 40 60 80 100 120 140 160 180 2 Millions of Barrels/Day Millions of Barrels/Day

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Case Study: Consider the following producer theory model
for a single firm producing oil, and the aggregate supply and
demand.
1.
2
3.
4.
5.
6.
7
Exercise
8.
What is the firm's equilibrium price and quantity?
What is the firm's profit at this level?
What will occur in the long-run for this market?
Explain in words.
What is the long run Price in this market, quantity
produced by a firm and level of profit. Indicate P and
quantity in the long run on your graph.
Assume the market is at long-run equilibrium. Use
the producer theory model from above to show the
impact of Iran's entry, assume this brings the market
to a price of $27. What is the new equilibrium price
and quantity for the firm?
What are the firms profits at this price?
What does this excerpt suggest about how firms will
behave in the short run?
What will happen in the long run?
70
Price/Barrel (S)
2883893802295
65
60
55
45
15
10
ATC
AVC
28888998
70
60
55
50
45
40
35
30
25
20
0
02 4 6 8 10 12 14 16 18 20 22 24 26 28 30
Millions of Barrels/Day
10
$1
E₁
D
0 20 40 60 80 100 120 140 160 180 2
Millions of Barrels/Day

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Step 1: Define business economics

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Step 2: Calculate the shortrun equilibrium price and quantity

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Step 3: Calculate the shortrun profits

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Step 4: Explain what will happen in the longrun

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Step 5: Examine the longrun scenario

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Step 6: Examine what will happen to price, quantity and profits if the market price drops to $27

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Step 7: Calculate the profits at this level

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Step 8: Explain firms' shortrun behavior

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Step 9: Explain firms' longrun behavior

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