Assume the cost data below represents monthly short-term production costs for each of the 1000 oil drillers competing in the domestic oil industry. Answer the following questions:

How does this industry resemble pure competition?

How is the price of a barrel of oil determined?

Why is each firm in the industry a price-taker?

Assume the price of a barrel of oil is $52. Determine the profit-maximizing or loss minimizing level of output for a single firm competing in the oil industry. Is the firm earning an economic profit, suffering a loss or breaking even?

Assume the price of a barrel of oil falls to $42. Determine the profit-maximizing or loss minimizing level of output for a single firm competing in the industry. Is the firm earning an economic profit, suffering a loss or breaking even?

Now assume the price of a barrel of oil falls to $15. Determine the profit-maximizing or loss minimizing level of output and determine the firm's short-run economic profit or loss.

Explain how the industry will adjust to economic profits or economic losses in the long run.cost data.jpg