Oil Market Analysis: Maximizing Producer Surplus

What is the total amount of producer surplus (per barrel of oil) earned by all four producers if the market price per barrel of oil is $51?

Answer: 81.76

Producer surplus is a key concept in economics that measures the benefit that producers receive by selling their goods at a price higher than what they were willing to sell it for. In this case, we have four producers with different willing prices for a barrel of oil. The market price is $51 per barrel.

Calculating Producer Surplus:

Let's look at each producer's producer surplus:

A: Market price - A's willing price = $51 - $32 = $19

B: Market price - B's willing price = $51 - $16 = $35

C: Market price - C's willing price = $51 - $17.25 = $33.75

D: Market price - D's willing price = $51 - $56.99 = -$5.99 (negative producer surplus means the producer is actually at a loss)

Now, let's sum up all the producer surplus values to get the total amount:

$19 + $35 + $33.75 - $5.99 = $81.76

Therefore, the total amount of producer surplus earned by all four producers if the market price per barrel of oil is $51 is $81.76. By understanding and utilizing concepts like producer surplus, producers can maximize their profits in the competitive oil market.

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