Accounting for supply by the competitive fringe
Course:- Microeconomics
Reference No.:- EM13700128

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The world willingness to pay for oil is given by P = 200 - Q, with P in dollars per barrel and Q in thousands of barrels per month, and OPEC is planning its strategy to set the world oil price. The competitive fringe of small firms takes the price OPEC sets as given. The fringe marginal cost curve is MC = 40 + Q, and OPEC's marginal cost of producing oil is constant at $20/barrel.

(a) What is the residual demand that OPEC faces after accounting for supply by the competitive fringe?

(b) How much oil will OPEC supply, acting as a cartel?

(c) What is the resulting world oil price?

(d) How much oil is supplied by the competitive fringe?

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