Consider Brockland, a medium-size nation that both produces and consumes oil and does not either export or import oil from other countries.

As a result of Brockland's industrial policy, its oil extraction and refining sites (30 plants located in North, East, South-East, South, and Central regions of the country) are all separately owned and are highly competitive in the provision of oil to its consumers. The plant information is shown in the Excel document associated with this assignment. The document also provides the plant capacity (in thousands of barrels of oil per day); the marginal cost (MC) of extraction and refining; and indicates whether the extraction technology used is either conventional (typically, less expensive) or non-conventional (shale oil extraction, typically more expensive). You can also assume that the marginal cost (MC) of extraction and refining is constant for the purposes of your analysis throughout the productive capacity of the plant; and thus, MC is the same as the average variable cost (AVC).

The demand for oil in Brockland is relatively stable. The demand equation can be approximated by Q_d = -20P + 2,200. Alternatively, you can the new equation as a reverse demand equation, P = -0.05Q_d + 110.

Using Excel, graph that clearly shows demand and supply for oil in Brockland, and determine the equilibrium quantity and price.

Helpful Hints:

Use the marginal cost and quantity data to graph your supply curve, assuming that the individual plants will be willing and able to produce oil if the market price is at least equal to their marginal cost of extraction and refining. You can assume that the transportation costs are already included in the marginal cost figures.

You have enough information in the Excel table to determine the Quantity Demanded and Quantity Supplied that are required to create the two curves. In determining quantity supplied, it might be useful to sort your data by price (from lowest to highest) and then make a formula for determining the quantity supplied at each increment of the marginal cost. For example, at a price of $10 (lowest marginal cost associated with Plant S1), only this plant will operate, and Qs will be equal to the plant's capacity of 120 (120,000 barrels per day). However, when price rises to $12, both Plant S1 and S10 will operate, producing Qs=120+120=240 units or 240,000 barrels per day).

Make sure that you appropriately label your axes and include legends for your curves. Please recall that your Q should be on the x-axis and your P should be on the y-axis, per standard convention in economics.

Insert the graph below (copy and paste from Excel). Please scale the graph as appropriate to show detail clearly.

What are the equilibrium quantity and price of oil in Brockland? How many plants operate to produce oil, and how many plants will shut down in the short run? Why? What types of plants primarily remain shut down, and why?

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