The OPEC cartel is trying to determine the total amount of oil to sell on the world market. It estimates world demand for oil to be QW = 103.33 - P/6, where QW denotes the quantity of oil (in millions of barrels per day) and P is price per barrel. OPEC’s economists also recognize the importance of non- OPEC oil supplies. These can be described by the estimated supply curve QS = .5P + 10.
a. Write down OPEC’s net demand curve.
b. OPEC’s marginal cost is estimated to be $20 per barrel. Determine OPEC’s profit-maximizing output and price. What quantity of oil is supplied by non-OPEC sources? What percentage of the world’s total oil supply comes from OPEC?