# ECON 1101 Draw the MC curve including the intercept termon the vertical axis and indicating the slope. Diagram drawn by hand is ok

April 14, 2018

Microsoft Word – 4a101-16-05The MC curve of an oil refinery is a straight line whose equation is given by the following formula: MC (at a quantity Q) = 100 +0.5Q. The lowest AVC of producing oil is \$1.00 (i.e., 100 cents) per litre. Quantity Q is expressed in units of millions of litres, i.e., if Q =1 then it means 1 million litres of oil are being produced. The MC is expressed in cents per litres. In other words, if Q = 1 (million litres) then MC is 100 + 0.5×1= 100 +0.5=100.5 cents per litre, i.e., to produce one more litre of oil will cost us 100.5 extra cents.Microsoft Word – 4a101-16-05(1point)Draw the MC curve including the intercept termon the vertical axis and indicating the slope. Diagram drawn by hand is ok.(2 points) If market price of oil is \$1.50 per litre and the refinery is producing Q=90 what happens to its profit if it decides to produce one more litre of oil, i.e., does profit increase, decrease or stay the same and if it does increase or decrease then by how much?(2points)Ifmarketpriceofoilis\$1.50perlitreandtherefineryis producing Q=110 what happens to its profit if it decides to produce one less litre of oil, i.e., does profit increase, decrease or stay the same and if it does increase or decrease then by how much?(1 points) If market price of oil is \$1.50 per litre how much oil would this refinery want to sell? Briefly explain how you get your answer.(1points)What is the supply curve of this refinery in your diagram.

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