1. Suppose that Saudi Arabia letsother members of OPEC sell all they want at the existing price, which theSaudis set and the other members accept. The demand for oil is P=96 – 2Q, whereP is the price per barrel of oil and Q is the total quantity demanded (inmillions of barrels per day). The total amount supplied by the other members ofOPEC is equal to QR where QR = 0.58P. The Saudis’marginal cost curve is given by MC = 3.02QS, where QS is Saudioutput.
(10 marks total)
a) At what output level should theSaudis operate to maximize profit? (2 marks)
b) What price should they charge?(2 marks)
c) How much will the industry as awhole produce at this price? (2 marks)
d) Graph this market. (4 marks)