Question
On September 14, 2019, a drone attack struck two oil factories in Saudi Arabia. The attack has produced significantly higher oil prices. These higher oil
On September 14, 2019, a drone attack struck two oil factories in Saudi Arabia. The attack has produced significantly higher oil prices. These higher oil prices have forced retail gasoline stations to pay more to refineries to acquire gasoline. For this question, assume the effect of this higher cost for inputs will be to shift the MC and the ATC of each retailer upward by exactly the same vertical amount per gallon. [Hint: this parallel shift in both curves will, then, leave the minimum ATC above the same output as you had shown in question (1) above.] Discuss and depict the movement to a short run equilibrium under these conditions. Be sure to graphically indicate the original and new prices and quantities, the size of the cost increase, the number of firms, and the size of profits.
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