Practice question for exam

Suppose the (inverse) daily demand for oil is a given by P = 130 Q, where Q denotes millions of barrels of oil and P is the price per barrel of oil. The marginal private cost of extracting oil is given by MPC = 10 + 2Q. Oil extraction gives rise to environmental pollution, such that the marginal social cost of extracting oil is given by MSC = 10 + 3Q. (a) Find the daily production and price of oil if the market for oil extraction is perfectly competitive. [6 marks] (b) Find the socially optimal production and price of oil and explain why it differs from the market outcome in (a). [6 marks] (0) Find the daily production and price of oil if there is a monopoly oil company and comment on your answer. [6 marks] (d) Illustrate your answers to (a), (b) and (c) in one diagram with Q on the horizontal axis and P on the vertical axis. [6 marks] (e) Does the monopoly oil company generate a deadweight loss? Is monopolyjustified in this market? ' marks] /