A Market for Oil
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- Each season, each oil producer simultaneously chooses how many barrels of oil to produce.
- You pay a cost for each barrel of oil your firm produces.
- This per-barrel cost is the same for all firms.
- The season’s market price depends on the total produced by all firms.
- Use the slider in the upper-right of your screen to investigate the relationship between total market production and the resulting market price.
- Use the slider at the bottom of your screen to choose your firm’s production.
- To choose the quantity in your production slider, press PRODUCE.
- Suppose there are two firms in the market.
- Each of two firms pays $6 per barrel of oil produced.
- One firm chooses to produce 10. The other chooses 9.
- Suppose the resulting market price is $11.
Payoff |
= |
barrels sold |
x |
(price - cost) |
|
|
Firm 1 |
= |
10 |
x |
($11 - $6) |
= |
$50 |
Firm 2 |
= |
9 |
x |
($11 - $6) |
= |
$45 |