ECO 304K Chapter Notes -Human Capital, Zip Code, Cash Register

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champagnefly476

19 Feb 2013

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ECO 304K Full Course Notes

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Chapter 11: costs and profit maximization under competition. Imagine that you are the owner of a stripper oil well and that you want to maximize your profit. Sometimes the firm doesn"t set prices sometimes simply accepts price that is given by the market. You cant sell any oil at a price above the market price and you can sell all your oil at the market price. Thus to maximize profit, you sell at the market price. The more and the better the substitutes, the more elastic the demand. 400,000 oil wells demand for oil is perfectly elastic (flat) A perfectly elastic demand curve for firm output is a reasonable approximation when the product being sold is similar across different firms and there are many buyers and sellers, each small relative to the total market. Demand curves are more elastic in the long run. Long run: the time after all exit or entry has occurred.

Related Questions

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?

ceruleanjellyfish751

Please answer all questions and submit your answers by 12:30 PM on Thursday, December 6. You may submit either by using the dropbox on Blackboard or by submitting it into the appropriate envelope in my mailbox in room 224. Please clearly label all pages you submit with your name and the CRN of your course. Please fasten all pages you submit by, e.g., stapling them or paperclipping them together. Please do not use horseshoes bent into the shape of a paperclip. This activity addresses learning outcome 4 on the syllabus and draws primarily on chapters 12-15 from your text.

Quantity	Price	Total Revenue	Total Cost	Profit
400	30
600	25
800	20
1000	15
1200	10
1400	5
1600	0

The marginal cost to produce one barrel of oil is $20. The market demand is listed above. There is no fixed cost, and the average total cost is therefore equal to the marginal cost ($20).

If the oil market is perfectly competitive, what quantity will be produced? What price will be charged? What will the firm's profit be?

If this is a monopolistic firm, what quantity will be produced? What price will be charged? What will the firm's profit be? Show your work.

Using your previous answer, assume that the monopoly is really two firms (Speyside Oil and Islay Oil) colluding. Suppose that they agree to produce the profit-maximizing quantity you determined above, but that Speyside Oil produces an extra 200 units (while Islay Oil keeps its word). What quantity will be produced? What price will be charged? What is each firm's profit?

Using your previous answer, assume that instead of Islay Oil keeping its word, each firm produces an extra 200 units. What quantity will be produced? What price will be charged? What is each firm's profit?