Economics Homework Help
Cornell University Daily Inverse Demand and Competitive Market Worksheet
Get Your Custom Essay Written From Scratch
We have worked on a similar problem. If you need help click order now button and submit your assignment instructions.
Just from $13/Page
Question 12
Suppose the (inverse) daily demand for oil is given by , where denotes millions of barrels of oil and is the price per barrel of oil.
undefined
The marginal private cost of extracting oil is given by . Oil extraction gives rise to environmental pollution, such that the marginal social cost of extracting oil is given by .
undefined
- (a)Find the daily production and price of oil if the market for oil extraction is perfectly competitive. [6 marks]
- (b)Find the socially optimal production and price of oil and explain why it differs from the market outcome in (a). [6 marks]
- (c)Find the daily production and price of oil if there is a monopoly oil company and comment on your answer. [6 marks]
- (d) Illustrate your answers to (a), (b) and (c) in one diagram with on the horizontal axis and on the vertical axis. [6 marks]
- (e)Does the monopoly oil company generate a deadweight loss? Is monopoly justified in this market? [6 marks]
