Question:

The current world production of oil is 250 millions barrels per day and the current world price of oil is $726.10 per barrel. The price elasticity of demand is -0.2 and the elasticity of supply is 0.3. Company A is planning to enter the world oil market with a daily production of 11 million barrels per day. For simplicity assume that the supply and demand curves are linear.

Required : Calculate the market price and total supply of oil after Company A has entered the the world oil market and explain why the total supply of oil increases with less than 11 million.