Use the following to answer questions : $$\begin{array}{l}
\text { Table: Demand for Crude Oil }\
\begin{array} { c c c }
\text { Quantity } & \begin{array} { c }
\text { Price } \
\text { (\$/barrel) }
\end{array} & \begin{array} { c }
\text { Total } \
\text { Revenue (\$) }
\end{array} \
\hline 0 & \$ 160 & \$ 0 \
10 & 150 & 1500 \
20 & 140 & 2800 \
30 & 130 & 3900 \
40 & 120 & 4800 \
50 & 110 & 5500 \
60 & 100 & 6000 \
70 & 90 & 6300 \
80 & 80 & 6400 \
90 & 70 & 6300 \
100 & 60 & 6000 \
110 & 50 & 5500 \
120 & 40 & 4800 \
130 & 30 & 3900 \
140 & 20 & 2800 \
150 & 10 & 1500 \
160 & 0 & 0
\end{array}
\end{array}$$
-(Table: Demand for Crude Oil)Use Table: Demand for Crude Oil.Assume that the crude oil industry is a duopoly and the marginal and fixed costs of producing crude oil equal zero.Suppose that the two firms are maximizing industry profit and splitting the profit evenly.If both firms engage in noncooperative behaviour,the industry output will be _____ barrels,and the price of crude oil will be _____.
A) 0;$160
B) 80;$80
C) 100;$60
D) 160;$0

Question

Use the following to answer questions : $$\begin{array}{l}
\text { Table: Demand for Crude Oil }\
\begin{array} { c c c } 
\text { Quantity } & \begin{array} { c } 
\text { Price } \
\text { (\$/barrel) }
\end{array} & \begin{array} { c } 
\text { Total } \
\text { Revenue (\$) }
\end{array} \
\hline 0 & \$ 160 & \$ 0 \
10 & 150 & 1500 \
20 & 140 & 2800 \
30 & 130 & 3900 \
40 & 120 & 4800 \
50 & 110 & 5500 \
60 & 100 & 6000 \
70 & 90 & 6300 \
80 & 80 & 6400 \
90 & 70 & 6300 \
100 & 60 & 6000 \
110 & 50 & 5500 \
120 & 40 & 4800 \
130 & 30 & 3900 \
140 & 20 & 2800 \
150 & 10 & 1500 \
160 & 0 & 0
\end{array}
\end{array}$$
-(Table: Demand for Crude Oil)Use Table: Demand for Crude Oil.Assume that the crude oil industry is a duopoly and the marginal and fixed costs of producing crude oil equal zero.Suppose that the two firms are maximizing industry profit and splitting the profit evenly.If both firms engage in noncooperative behaviour,the industry output will be _____ barrels,and the price of crude oil will be _____.
A) 0;$160
B) 80;$80
C) 100;$60
D) 160;$0

Quizplus · Accepted Answer

The correct answer is C.The profit-maximizing output for a monopolist is where marginal revenue equals marginal cost. In this case, marginal cost is zero, so the profit-maximizing output is where marginal revenue is zero. The marginal revenue curve is the derivative of the total revenue curve. The total revenue curve is given by the formula TR = P * Q, where P is the price and Q is the quantity. The derivative of the total revenue curve is MR = d(TR)/dQ = P + PQ'. The marginal revenue curve is zero when P + PQ' = 0, or when P = -PQ'. The price elasticity of demand is given by the formula Ed = (dQ/dP) * (P/Q). The price elasticity of demand is equal to -1 when P = -PQ', or when the marginal revenue curve is zero. The price elasticity of demand is equal to -1 at a quantity of 100 barrels. Therefore, the profit-maximizing output for the crude oil industry is 100 barrels. The price of crude oil will be the price that corresponds to a quantity of 100 barrels. The price of crude oil is $60 per barrel.

Use the Following to Answer Questions -(Table: Demand for Crude Oil)Use Table: Demand for Crude Oil