Drawing supply curves
Going through an econ text Introduction to Economic Analysis. There's this question:
> An owner of an oil well has two technologies for extracting oil. With one technology, the oil can be pumped out and transported for $5,000 per day, and 1,000 barrels per day are produced. With the other technology, which involves injecting natural gas into the well, the owner spends $10,000 per day and $5 per barrel produced, but 2,000 barrels per day are produced. What is the supply? Graph it.
>(Hint: Compute the profits, as a function of the price, for each of the technologies. At what price would the producer switch from one technology to the other? At what price would the producer shut down and spend nothing?)
Not sure how to approach this. Guessing we want the same rate of barrel production for both techs due to ceteris paribus, but I'm not sure how to manipulate the costs of technology 2 to halve the barrel production.
The hint is also pretty confusing, and I'm not sure how it helps with the main q. I found that that when p>1.5, the producer switches from tech 1 to 2 to maximise supply profit (=price*quantity - cost), but neither tech gives any profits until p>10.
> An owner of an oil well has two technologies for extracting oil. With one technology, the oil can be pumped out and transported for $5,000 per day, and 1,000 barrels per day are produced. With the other technology, which involves injecting natural gas into the well, the owner spends $10,000 per day and $5 per barrel produced, but 2,000 barrels per day are produced. What is the supply? Graph it.
>(Hint: Compute the profits, as a function of the price, for each of the technologies. At what price would the producer switch from one technology to the other? At what price would the producer shut down and spend nothing?)
Not sure how to approach this. Guessing we want the same rate of barrel production for both techs due to ceteris paribus, but I'm not sure how to manipulate the costs of technology 2 to halve the barrel production.
The hint is also pretty confusing, and I'm not sure how it helps with the main q. I found that that when p>1.5, the producer switches from tech 1 to 2 to maximise supply profit (=price*quantity - cost), but neither tech gives any profits until p>10.
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