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Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder
Edition 12ISBN: 978-1133189022Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder
Edition 12ISBN: 978-1133189022 Exercise 24
Suppose that the total market demand for crude oil is given by
QD = 70,000 - 2,000 P
where QD is the quantity of oil in thousands of barrels per year and P is the dollar 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 (QS =.??), and the market equilibrium price and quantity (where QD = QS).
b. Suppose a practically infinite source of crude oil is discovered in New Jersey 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 -v-^-r, 1,500
how much should the price leader produce in order to maximize profits? What price and quantity will now prevail in the market?
QD = 70,000 - 2,000 P
where QD is the quantity of oil in thousands of barrels per year and P is the dollar 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 (QS =.??), and the market equilibrium price and quantity (where QD = QS).
b. Suppose a practically infinite source of crude oil is discovered in New Jersey 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 -v-^-r, 1,500
how much should the price leader produce in order to maximize profits? What price and quantity will now prevail in the market?
Explanation
Verified
Verified
The market demand function for crude oil...
Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder
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