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An oil refinery converts crude oil to gasoline. It takes one barrel of crude oil to produce one barrel of gasoline. The total cost of producing q barrels of gasoline at the refinery is

TC=1/2q2 + wq

where w is the price of a gallon of crude oil

1) Express the marginal cost of producing gasoline as a function of q and w.

2) Suppose the refinery can purchase 50 barrels of oil for $5per barrel, but must pay $15 per barrel for any barrels it buys beyond 50 barrels. What is the marginal cost of producing a quantity of gasoline of less than or equal to 50 barrels? What is the MC of producing a quantity of gasoline of more than 50barrels?

3) Suppose the demand for gasoline facing the refinery is perfectly elastic at $30 per barrel. How much will the firm supply?

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Chika Ilonah
Chika IlonahLv10
28 Sep 2019

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Related questions

The gasoline demand is derived from the demand for transportation services. For this specific example, think of the demand for transportation services as the number of the miles people want to drive each month. You can safely assume that the number of miles demanded each month is directly related to how much it costs to drive an additional mile ( the marginal cost of gasoline per mile).

To figure out how much it costs to drive an extra mile, we need to know the fuel efficiency (miles per gallon, or mpg). of the driver's car, along with the prices of gasoline. Suppose the price of gasoline is $6 per gallon and Carrie drives a truck that gets 10 miles per gallon. For Carrie, the marginal cost of gasoline per mile is $6 per gallon or $0.60 per mile.

Let's explore how changes in fuel efficiency affect the driving habits of two drivers, Rory, and Lucille.

Assume that Rory and Lucille each drive identical cars that get 24 miles per gallon. When gas cost $3.60 per gallon, they each drive 1,560 miles per month. When gasoline is $3.60 per gallon, the extra cost of driving one additional mile ( the marginal cost per mile) is _______? ( which answer fills the blank $0.51, $0.25, $0.15, $0.36). They each buy ______ ( which answer fills the blank 50, 60, 65, 433) gallons of gasoline per month, and at $3.60 per gallon, they each spend _________ ( which answer fills the blank $5616.00, $180.00, $234.00, $175.00). per month on gasoline.

Assume each driver buys the same new, more fuel-efficient car that gets 30 mpg. When gasoline is $3.60 per gallon, the marginal cost per mile for the new car is ______ ( which answer fills in the blank $0.36, $0.12, $0.22, $0.56).

You can use the price elasticity of demand to see how a change in the marginal cost per mile of driving will impact Rory's and Lucille's driving habits. The price elasticity of demand is the absolute value of the percentage change in the quantity divided by the percentage change in price.

In this case, Q1 is the number of miles driven each month before the switch to a more fuel-efficient car and Q2 is the number of miles driven each month after the switch. P1 is the marginal cost per mile of the car that gets 24 miles per gallon and P2 is the marginal cost per mile of the car that gets 30 miles per gallon.

In the old car, Rory drove 1,560 miles per month. In the new car, Rory drives 2,040 miles per month. Rory buys ________ ( which answer fills in the blank 37.3, 375, 57.8, 68) gallons of gasoline per month and spends ________ ( which answer fills in the blank $231.25, $240.00, $244.80, $ 168.00). With the new car, Rory buys _______ ( which answer fills in the blank the same amount of, more, or less) gasoline each month. Rory price elasticity of demand for miles per month is _______ ( which answer fills in the blank 0.85, 1.20, 1.50, 0.62).

In the old car, Lucille drove 1,560 miles per month. In the new car, Lucille drives 1,760 miles per month. Lucille buys __________ ( which answer fills in the blank 45, 286, 58.67, 62.5) gallons of gasoline per month and spends ___________( which answer fills in the blank $250.00, $157.50, $211.20, $375.00). With the new car, Lucille buys ________ ( which answer fills in the blank, the same amount of, more, less) gasoline each month. Lucille's price elasticity of demand for miles per month is _________ ( which answer fills in the blank, 1.16, 0.54, 0.85, 0.42).

7. In December 2004, the oil-producing nations of OPEC began reducing output to keep prices above $40 per barrel. In doing this, OPEC was acting as a monopoly even though there was more than one producer. OPEC is a: (Points: 5)
a. cartel.
b. price taker.
c. producer in a contestable market.
d. producer in a monopolistically competitive market.


8. The difference between a perfectly competitive firm and a monopolistically competitive firm is that a monopolistically competitive firm faces a: (Points: 5)
a. horizontal demand curve and price equal the marginal cost in equilibrium.
b. horizontal demand curve and price exceeds the marginal cost in equilibrium.
c. downward-sloping demand curve and price equal the marginal cost in equilibrium.
d. downward-sloping demand curve and price exceeds the marginal cost in equilibrium.


9. Suppose an industry only has four firms and they each have 10 percent, 8 percent, 8 percent, and 6 percent of the market. The Herfindahl-Hirschman index of this market is closest to which of the following? (Points: 5)
a. 8
b. 32
c. 66
d. 264

Question 1 If it was impossible to have a comparative advantage, there would be no gains from trade. True False 4 points

Question 2 If the price of Good X is $10 and price of Good Y is $15, the slope of the budget constraint is 1.5. True False 4 points

Question 3 If the demand and supply curves have equal slopes in absolute value, the burden of a commodity tax will be split equally regardless of on whom the tax is placed. True False 4 points

Question 4 Suppose that supply is fixed at 100 units and demand is Q = 500 P. A price ceiling of $100 creates a shortage of 400 units. True False 4 points

Question 5 Housing shortages caused by rent controls are larger in the long run because the supply of housing is more elastic in the long run. True False 4 points

Question 6 Firms should exit the industry if average costs are greater than marginal costs. True False 4 points

Question 7 If a 3.67 percent increase in price causes a 1.97 percent decrease in quantity demanded, then total revenue must fall following an increase in price. True False 4 points

Question 8 Which of the following choices best illustrates the concept of Adam Smith's invisible hand ? A Vietnamese farmer grows rice; an exporter ships it to the United States, and a grocer in New York sells it to a customer. A fishery's stock of fish becomes depleted due to overfishing as boats from around the world converge. A government regulates a firm to clean up the pollutants it has released as part of its production process. An apartment building is built, which provides much needed housing, on the site of the only playground for children in that town. 4 points

Question 9 Figure: Labor Supply and Welfare Refer to the figure. The budget constraint is: ABC. BD. ABDC. ABD. 4 points Question 10 The price of coffee has increased, yet evidence suggests the demand for coffee has been stable. A possible explanation is that: there has been no change in the supply of coffee. there has been increased use of subsidies in coffee production. wages of workers in coffee production might have decreased. wages of workers in coffee production might have increased. 4 points Question 11 Which of the following statements is TRUE regarding profit maximization in competitive markets? I. When all firms pursue profits, none of them achieve profits. II. When all firms pursue profits, only the most innovative will achieve profits. III. Production is divided in such a way that total costs of production are minimized. I only II only I and III only II and III only 4 points Question 12 Suppose France can produce four phones or three computers with one unit of labor, and Sweden can produce one phone or two computers with one unit of labor. If France can trade only with Sweden, then the theory of comparative advantage suggests that: France should specialize in producing phones and import computers from Sweden. France should specialize in producing computers and import phones from Sweden. France should produce both phones and computers, and import nothing from Sweden. France should import both phones and computers from Sweden. 4 points Question 13 Potato chips and popcorn are substitutes. A subsidy for potato chips will ______the demand for popcorn and the quantity of popcorn sold will ______. (Table: Barrels of Oil) Refer to the table. What is the total amount of producer surplus (per barrel of oil) earned by all four producers if the market price per barrel of oil is $51? Table: Barrels of Oil Minimum willingness to sell Country a single barrel of oil Country A $32.00 Country B 16.00 Country C 17.25 Country D 56.99 increase; increase increase; decrease decrease; decrease decrease; increase 4 points Question 14 In the market for Good X a necessity good without any good substitutes the workers and capital in the industry can easily find work producing other goods. The burden of the tax is likely to fall: more heavily on buyers, given that demand is more inelastic than supply. evenly between buyers and sellers. more heavily on sellers, given that supply is more inelastic than demand. more heavily on buyers, given that demand is more elastic than supply. 4 points Question 15 A U.S. manufacturer arranges to purchase parts from a German supplier for 500,000 euros in six months. The U.S. manufacturer is concerned that the dollar will depreciate against the euro, meaning the dollar cost of the 500,000 euros will rise. What should the U.S. manufacturer do? lobby the Fed to lower interest rates on six-month T-bills buy a futures contract that fixes the dollar cost of 500,000 euros in six months buy an exchange rate contract that pegs the interest rate to the discount rate on interbank loans sell a naked option to cover the output spread 4 points Question 16 Which of the following scenarios would cause a speculator to buy low and sell high ? Farmers expect to have a bumper harvest of corn next year. Imports of corn begin to flood the country. The government is expected to pass legislation making it mandatory for all vehicles to use corn-based fuels within one year. The government is expected to subsidize corn production for farmers. 4 points Question 17 In a market with a price ceiling which of the following is TRUE? Buyers and sellers experience unexploited gains from trade. Resources are allocated to their most efficient uses. The supply of goods is sold by the sellers with the lowest costs. The supply of goods is bought by the buyers with the highest willingness to pay. 4 points Question 18 Consider the following statements: I. Relative to a no-trade situation, if the United States exported wheat, the U.S. domestic wheat price would rise and domestic production of wheat would expand. II. Relative to a no-trade situation, international trade causes prices of all goods to rise. I is true; II is false. I is false; II is true. Both I and II are true. Both I and II are false. 4 points Question 19 As the price of a good fluctuates, a profit-maximizing firm will expand or contract production along its: average cost curve. average product curve. marginal cost curve. marginal product curve. 4 points Question 20 An increase in demand and a decrease in supply occur in a market. What happens to the equilibrium price and quantity? The equilibrium price decreases; the change in the equilibrium quantity is ambiguous. The equilibrium price decreases; the equilibrium quantity increases. The equilibrium price increases; the change in the equilibrium quantity is ambiguous. The equilibrium price increases; the equilibrium quantity decreases.

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