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Suppose the world oil market is divided into two groups. The first group is OPEC and thr other group is the competitive fringe.
Suppose the world oil market is divided into two groups. The first group is OPEC and thr other group is the competitive fringe. Since the competitive fringe is competitive, the supply curve is equal to their marginal costs. The marginal cost curve for the fringe is upward sloping and is greater than the marginal cost curve for OPEC. If the price in the market is equal to where thr world demand equals thr supply curve for the competitive fringe, the competitive fringe supplies the entire market.
A) based on the above information, graph the world demand curve, th3 supply curve for the competitive fringe and the equilibrium price and quantity if the competitive fringr supplies the entire market. Explain why competitive fringe will supply the entire market at this price.
B) on the graph in part (a), show demand curve for OPEC. Explain why its in the position you have chosen.
C)on a seperate graph, draw thr MR and MC curves for OPEC and show the profit maximizing output level and price for OPEC. Explain below why this is profit maximizing output level for OPEC.
D) show the quantiry of oil that the conpetitive fringe would produce when OPEC has set the price and quantity. Explain why they will produce at the output level that you have chosen.
E) explain why there is a kink in the market demand curve.
