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.