Optimizing Oil Production: Finding the Right Market Price
Explanation:
Given data:
- Extraction cost of oil producer A = $8
- Extraction cost of oil producer B = $10
- Extraction cost of oil producer C = $12
- Total production of oil per day = 100 barrels
From the information provided, we can see that the extraction cost for producer A is the lowest at $8 per barrel, followed by producer B at $10 per barrel and producer C at $12 per barrel. Considering that the market price of oil is fixed at $9 per barrel, only producer A can cover the extraction cost and make a profit.
Since producers B and C have higher extraction costs than the market price of oil, they will not be able to cover the costs and, therefore, will not produce any oil. This leaves producer A as the sole producer in this scenario, producing the maximum capacity of 100 barrels per day to maximize profits.
In conclusion, when the market price of oil is $9 per barrel and there are no user costs, only producer A will produce oil, yielding a total production of 100 barrels per day.