tey ) Wihas s the prce and qatty at PROBLEM 2 (30 POINTs) Consider an oligopoly
ID: 1115385 • Letter: T
Question
tey ) Wihas s the prce and qatty at PROBLEM 2 (30 POINTs) Consider an oligopoly model not given in class: the "price leadership model." Saudi Arabia lets the other members of OPEC sell all the oil they want at the existing price, which the Saudis set and the other members accept. The demand for oil is P = 88-20, where P is the price per barrel of oil and Q is the total quantity demanded (in millions of barrels) per day. The total amount supplied by the other members of OPEC is equal to Qr: Q0.6P the Saudis if the marginal cost for their What is the profit-maximizing level of output for production of oil is 15? What price should they charge? How much will the industry as a whole produce at that price?Explanation / Answer
Demand for oil, P = 88-2Q
TR = 88Q-2Q2
MR = 88 - 4Q
MC = 15
MR=MC
88-4Q = 15
4Q = 73
Q = 18
P = 88-2*18 or P = $52
so, profit maximizing price for Saudi is $52 and quantity is 18.
total amount supplied by others members of OPEC = 52*0.6
Qr=31
whole industry produce= 18+31 = 49
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.