1. The price of oil rose to $140 per barrel in 2008. This led to increased profi
ID: 1161244 • Letter: 1
Question
1.
The price of oil rose to $140 per barrel in 2008. This led to increased profits for oil producers. The profits, along with new technologies, led to an increase in oil production in the United States. The price of oil recently dropped to $45/ barrel.
The cost of production for oil producers in the North Dakota Bakken Basin have been estimated at:
Variable $30/barrel
Fixed $35/barrel
Total $65/barrel
Assume the current price is $40/barrel. Will North Dakota producers continue to produce in the Short Run? Long Run?
2.
The U.S. Post Office was granted a monopoly in 1775 and has operated under federal protection ever since. In 1971, Congress converted the Post Office Department into a semi-independent agency called the U.S. Postal Service, or USPS. More than 650,000 employees at 37,000 post offices deliver an average of 177 billion pieces of mail a year to 144 million home and business addresses. This amounts to about 40 percent of the world’s total mail delivery. USPS pays no taxes and is exempt from local zoning laws. It has a legal monopoly in delivering regular, first-class letters and has the exclusive right to use the space inside your mailbox. Other delivery services such as FedEx or UPS cannot deliver to mail boxes or post office boxes. The USPS monopoly has suffered in recent years because of rising costs and growing competition from new technologies.
Which technologies are disrupting the USPS business model.
Should the federal government continue to grant legal monopoly status the USPS?
3.
Oligopoly is defined by the text as a market structure characterized by so few firms that each behaves interpedently. This type of market structure is characterized by a few firms dominating a market. Barriers to entry that enable an Oligopolistic market structure include:
Economies of scale
Legal restrictions
Brand names
Control over an essential resource
High cost of entry
There are many Oligopolistic industries in the United States where 4-5 firms control a large majority of the economic activity in that industry.
Discuss a United States industry that operates in an Oligopolistic market structure. Highlight the major companies in the industry and barriers to entry that they enjoy.
4. There is talk about requiring drug testing for anyone that receives Welfare funds from our government. How will this effect our economy? What are the short term and long term impacts? Do benefits outweigh the costs? Would you recommend this or not?
Explanation / Answer
(1)
A producer will continue to produce (shut down) in short run if price is higher (lower) than average variable cost (AVC), and will remain in business (exit the market) in long run if price is higher (lower) than average total cost (ATC).
When price is $40 or $45, it is higher than AVC of $30 per barrel, therefore the producers will continue operations in short run. But since either of these prices is lower than ATC of $65 per barrel, the firm will exit the market in long run.
NOTE: As per Chegg Answering Policy, first question has been answered.
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