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The oil drilling industry consists of 60 producers, all of whom have an identical short-run total cost curve, STC(Q) = 64 + 2Q2, where Q is the monthly output of a firm and \$64 is the monthly fixed cost. The corresponding short-run marginal cost curve is SMC(Q) = 4Q. Assume that \$32 of the firms monthly \$64 fixed cost can be avoided if the firm produces zero output in a month. The market demand curve for oil drilling services is D(P) = 400 5P, where D(P) is monthly demand at price P. Find the market supply curve in this market, and determine the short-run equilibrium price.
SOLUTION: n=60 D ( P ) = 400 5 P = Qd STC = 64+ 2 Q 2 Monthly cost= 64 =(32+32) SMC= 4Q Q=P/4 Total quantity supplied Qs=…

0P/4 = 15P Equilibrium demand and supply: Qd=Qs 400 5 P =15P 400=20P P=20 (ans)

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