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?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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