Practice problems_Final_Sketched Solutions - EBF 200...

EBF 200
Introduction to Energy and Environmental Economics
Final Practice Problems Sketched Solutions
Multiple choice
1

Problems
1. Suppose the world demand schedule for oil is as follows:
Price
per
barrel
Quantity
demanded
$50 40
$75 30
$125 20
There are two oil producing countries, A and B. Each will
produce either 10 or 20 barrels of oil. Assume they can produce
this oil at zero cost.
a. There are four possible outcomes: A produces 10 or 20 and B
produces 10 or 20. Find each country’s profit for each of
these possibilities.
2

b. Suppose these countries choose the quantity of oil to
produce simultaneously and without consulting with one
another. Show that each country will produce 20 barrels of
oil and each will earn a profit of $1,000.