As we saw in the chapter opener, the development of fracking technology has revolutionized the U.S. oil industry, leading to large gains in production. Many of the firms that took the lead in using fracking were much smaller than the multinational U.S. oil firms, such as ExxonMobil, Chevron, and ConocoPhillips, that had dominated the industry for more than 100 years. Some investors believed that many fracking firms were too small to achieve economies of scale. As an article in the Wall Street Journal put it: Investors have begun pushing companies in the shale sector. To pursue purchases or combinations, arguing that greater scale will help them turn profits.  Companies that are big enough to drill giant wells, finance new pipelines and lock up equipment and other needs in long-term contracts have a strong advantage over those that cannot, some analysts say. Cimarex Energy was founded in 2002 in Denver, Colorado. In 2018, the company agreed to buy Resolute Energy, which was founded in 2004 and also headquartered in Denver. Before the deal, Cimarex pumped 220,000 barrels of oil per day and Resolute pumped 35,000 barrels per day.

a. What must have been true of Cimarex’s position on its long-run average cost curve for producing oil if it expected to benefit from buying Resolute?
b. Use a long-run average cost curve for Cimarex to illustrate the effect the firm expected as a result of buying Resolute. Can we determine whether Cimarex reached minimum efficient scale as a result of this deal? Briefly explain.