Question 2:

The Miss Manners Renery in Dry Rock, Oklahoma, converts crude oil into gasoline. It takes 1 barrel of crude oil to produce 1 barrel of gasoline. In addition to the cost of oil there are some other costs involved in rening gasoline. Total costs of producing y barrels of gasoline are described by the cost function CW) 2 y2 / 4 + pay, where pO is the price of a barrel of crude oil.2 1. 2. Express the marginal cost of producing gasoline as a function of po and y. Suppose that the renery can buy 50 barrels of crude oil for $5 a barrel but must pay $15 a barrel for any more that it buys beyond 50 barrels. Determine the marginal cost curve for gasoline. . Plot Miss Manners' supply curve by using blue ink. Suppose that Miss Manners faces a horizontal demand curve for gasoline at a price of $30 per barrel. Plot this demand curve on your graph by using red ink. How much gasoline will she supply? Explain. . If Miss Manners could no longer get the rst 50 barrels of crude for $5, but had to pay $15 a barrel for all crude oil, how would her output change? Why? . Now suppose that an entitlement program is introduced that permits reneries to buy one barrel of oil at $5 for each barrel of oil that they buy for $15. What will Miss Manners' supply curve be now? Assume that it can buy fractions of a barrel in the same manner. Plot this supply curve on your graph by using black ink. If the demand curve is horizontal at $30 a barrel, how much gasoline will Miss Manners supply now