Derive the market supply curve and the equilibrium price and quantity b) Suppose a practically infinite supply of crude oil is discovered in North- Eastern Province (NEP) by a would-be price-leader and that the oil can be produced at constant average and marginal cost of Kshs.15 per barrel. If the supply behavior of the competitive firm described above is not changed by this discovery, how much should the price leader produce in order to maximize profits? c) What price and quantity will now prevail in the oil market? d) Graph (sketch) the results obtained above and show whether the consumer surplus increases as a result of the North-Eastern Province oil discovery? Indicate how the consumer surplus after the discovery compares to what would exist if the North-Eastern Province oil were supplied competitively?
5. Suppose the demand for crude oil is given by the function: Q = -2000P + 70,000
where Q is quantity of oil in thousands of barrels and P is price per barrel of oil. Suppose there are 1000 identical small crude oil producers each with marginal cost
MC = Q + 5 Where Q is the output of the typical firm:
a) Derive the market supply curve and the
b) Suppose a practically infinite supply of crude oil is discovered in North- Eastern Province (NEP) by a would-be price-leader and that the oil can be produced at constant average and marginal cost of Kshs.15 per barrel. If the supply behavior of the competitive firm described above is not changed by this discovery, how much should the price leader produce in order to maximize profits?
c) What price and quantity will now prevail in the oil market?
d) Graph (sketch) the results obtained above and show whether the
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