1. The demand for oil is Q = 10000 — 400P. The cost of production for a firm operating as the sole producer of a reservoir can be described by the following cost function:
C(q) = 3000 + q 640
2
There is a fixed cost of production F = $3000 and increasing marginal costs with marginal cost function mc =Suppose that the industry is regarded as competitive 320 even if the number of producers is small (firms produce to point where p = mc).
(a) If there is just a single producer, what is the price of oil, the quantity produced. and the profits to the firm? (b) If there are 5 firms, each producing oil from distinct reservoirs, determine the price of oil, the quantity of oil produced and the profits to each firm. (c) Can the industry support another producer (operating on a separate reservoir)? (d) Suppose that when multiple producers pump for oil from a common reservoir the marginal costs of pumping oil for an individual firm increases with the number of other firms pumping for oil from that reservoir. The cost function of an individual firm is now be C(q) = 3000 +17640 and the marginal cost function will be mc = 320(1 where n is the number of producers on the reservoir. Determine, price, quantity and profits for the case of 2 producers on a common reservoir. Compare your answer to (a). (e) When there are 5 producers all pumping from the same well, find the total amount produced and the profits to each firm.
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