Question

12.10. Suppose that the total market demand for crude oil is given by Qp70,000 - 2,000 P, where Qp 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 con stant average and marginal cost of AC- MC- $15 per barrel. Assume also that the supply behav- ior 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 1,500 how much should the price leader produce in order to maximize profits? What price and quantity will now prevail in the market?