El Niño wind patterns affected the weather across the United States during the winter of 1997-1998.Suppose the demand for home heating oil in Connecticut is given by Q = 20 - 2P_hho + 0.5P_ng - TEMP,where Q is the quantity of home heating oil demanded,P_hho is the price of home heating oil per unit,P_ng is the price of natural gas per unit,and TEMP is the absolute difference between the average winter temperature over the past 10 years and the current average winter temperature.If the current price of home heating oil is $1.20,the current price of natural gas is $2.00,and the average winter temperature this year is 40 degrees compared to 28 degrees over the past 10 years,if the sellers of home heating oil are profit maximizers,they should: A) lower prices. B) raise prices. C) advertise more. D) advertise less. E) none of the above

Question

Quizplus · Accepted Answer

According to the demand function, the quantity demanded of home heating oil is negatively related to its price and positively related to the price of natural gas, but negatively related to the difference between the average winter temperature and the current temperature. Assuming that the prices of home heating oil and natural gas are given, the only variable that can be changed to increase profit is the temperature difference. Since the current temperature is 12 degrees warmer than the average temperature over the past 10 years, the demand for home heating oil is likely to be lower. Therefore, the sellers should raise prices to maximize profit.

El Niño Wind Patterns Affected the Weather Across the United