Unformatted text preview: profit of $1.50 on each barrel of oil. Therefore, if there are 30 barrels you would earn a profit of $45. The owner has done extensive geological studies and knows the number of barrels of oil in the field, but you do not. You are risk neutral. For simplicity, assume that if the current owner is indifferent between accepting and rejecting your offer he will accept. What the maximum price you would offer for this oilfield? 3. Suppose that at your firm, the relationship between output produced and the number of workers you hire is as follows: Labor Total product 1 12 2 23 3 32 4 38 5 42 6 45 (a) Is the relationship between output and labor in this problem consistent with the law of diminishing returns? (b) Suppose your firm is a perfect competitor in the output market and the labor market. If the price of output is $9 and the wage rate is $27, how many workers should your firm hire? (c) If the price of output falls to $3 and the wage remains $27, how many workers should your firm hire?...
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- Fall '09
- Barrel, barrels, current owner, extensive geological studies