3.10 When gasoline prices spike, producers consider using oil fields that once had been passed over because of the high costs of extracting oil.

a. In a figure, show what this statement implies about the shape of the oil extraction cost function.

b. Use the cost function you drew in part a to show how an increase in the market price of gasoline affects the amount of oil that a competitive firm extracts. Show the change in the firm’s equilibrium profit.