Suppose that the total market demand for crude oil is given by 70, 000 – 2,000P - where Q, is the quantity of oil in thousands of barrels per year and P is the dollar D price per barrel. Suppose also that there are 1,000 identical small producers of crude oil, each with marginal costs given by MC q + 5 where q is the output of the typical firm. a. Assuming that each small oil producer acts as a price taker, calculate the typical firm's supply curve (q: ...), the market supply curve (Q. = ...), and the market equilibrium price and quantity (where Q,=Q). D b. Suppose a practically infinite source of crude oil is discovered in Balikpapan by a would-be price leader and that this oil can be produced at a constant average and marginal cost of AC = MC = $15 per barrel. Assume also that the supply behavior of the competitive fringe described in part a is unchanged by this discovery. Calculate the demand curve facing the price leader. c. Assuming that the price leader's marginal revenue curve is given by MR = 25 how much should the price leader produce in order to 1,500 maximize profits? What price and quantity will now prevail in the market?
Suppose that the total market demand for crude oil is given by 70, 000 – 2,000P - where Q, is the quantity of oil in thousands of barrels per year and P is the dollar D price per barrel. Suppose also that there are 1,000 identical small producers of crude oil, each with marginal costs given by MC q + 5 where q is the output of the typical firm. a. Assuming that each small oil producer acts as a price taker, calculate the typical firm's supply curve (q: ...), the market supply curve (Q. = ...), and the market equilibrium price and quantity (where Q,=Q). D b. Suppose a practically infinite source of crude oil is discovered in Balikpapan by a would-be price leader and that this oil can be produced at a constant average and marginal cost of AC = MC = $15 per barrel. Assume also that the supply behavior of the competitive fringe described in part a is unchanged by this discovery. Calculate the demand curve facing the price leader. c. Assuming that the price leader's marginal revenue curve is given by MR = 25 how much should the price leader produce in order to 1,500 maximize profits? What price and quantity will now prevail in the market?
Chapter12: The Partial Equilibrium Competitive Model
Section: Chapter Questions
Problem 12.9P
Related questions
Question
![Suppose that the total market demand for crude oil is given by
70, 000 – 2,000P
QD
-
where Q, is the quantity of oil in thousands of barrels per year and P is the dollar
D
price per barrel. Suppose also that there are 1,000 identical small producers of crude
is the output of the
oil, each with marginal costs given by MC
q + 5 where
typical firm.
a. Assuming that each small oil producer acts as a price taker, calculate the
typical firm's supply curve (q
the market equilibrium price and quantity (where Q,=Q).
...), the market supply curve (Q, = ...), and
b. Suppose a practically infinite source of crude oil is discovered in Balikpapan
by a would-be price leader and that this oil can be produced at a constant
average and marginal cost of AC
the supply behavior of the competitive fringe described in part a is unchanged
by this discovery. Calculate the demand curve facing the price leader.
MC
$15 per barrel. Assume also that
c. Assuming that the price leader's marginal revenue curve is given by
MR :
25
how much should the price leader produce in order to
-
1,500 >
maximize profits? What price and quantity will now prevail in the market?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff054ecdc-5138-47e4-9a65-3e3d7da0a90d%2Fd482bc3f-f5df-41b1-8eda-a79623aedfba%2F9r1wpjk_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Suppose that the total market demand for crude oil is given by
70, 000 – 2,000P
QD
-
where Q, is the quantity of oil in thousands of barrels per year and P is the dollar
D
price per barrel. Suppose also that there are 1,000 identical small producers of crude
is the output of the
oil, each with marginal costs given by MC
q + 5 where
typical firm.
a. Assuming that each small oil producer acts as a price taker, calculate the
typical firm's supply curve (q
the market equilibrium price and quantity (where Q,=Q).
...), the market supply curve (Q, = ...), and
b. Suppose a practically infinite source of crude oil is discovered in Balikpapan
by a would-be price leader and that this oil can be produced at a constant
average and marginal cost of AC
the supply behavior of the competitive fringe described in part a is unchanged
by this discovery. Calculate the demand curve facing the price leader.
MC
$15 per barrel. Assume also that
c. Assuming that the price leader's marginal revenue curve is given by
MR :
25
how much should the price leader produce in order to
-
1,500 >
maximize profits? What price and quantity will now prevail in the market?
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
![Principles of Economics 2e](https://www.bartleby.com/isbn_cover_images/9781947172364/9781947172364_smallCoverImage.jpg)
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax
![Essentials of Economics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781337091992/9781337091992_smallCoverImage.gif)
Essentials of Economics (MindTap Course List)
Economics
ISBN:
9781337091992
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
![Principles of Economics 2e](https://www.bartleby.com/isbn_cover_images/9781947172364/9781947172364_smallCoverImage.jpg)
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax
![Essentials of Economics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781337091992/9781337091992_smallCoverImage.gif)
Essentials of Economics (MindTap Course List)
Economics
ISBN:
9781337091992
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
![Micro Economics For Today](https://www.bartleby.com/isbn_cover_images/9781337613064/9781337613064_smallCoverImage.gif)
![Microeconomics: Private and Public Choice (MindTa…](https://www.bartleby.com/isbn_cover_images/9781305506893/9781305506893_smallCoverImage.gif)
Microeconomics: Private and Public Choice (MindTa…
Economics
ISBN:
9781305506893
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
![Economics: Private and Public Choice (MindTap Cou…](https://www.bartleby.com/isbn_cover_images/9781305506725/9781305506725_smallCoverImage.gif)
Economics: Private and Public Choice (MindTap Cou…
Economics
ISBN:
9781305506725
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning