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A Canadian firm can extract 4 million barrels of oil per year for zero cost. The firm can always sell oil to Canadians, who are
A Canadian firm can extract 4 million barrels of oil per year for zero cost. The firm can always sell oil to Canadians, who are always willing to buy an unlimited quantity of oil for $30/barrel. If there is a pipeline, the firm can also sell the oil to an American refinery at the end of the pipeline. The American refinery is willing to buy an unlimited quantity of oil for $45/barrel. Suppose that the pipeline can transport 1 million barrels of oil each year. a) Assuming the Canadian firm maximizes its profit, what will its profits be per year if there is no pipeline? b) How much will the Canadian firm make per year if the pipeline is constructed
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