An oil refinery converts crude oil to gasoline. Assume it takes 1 barrel of crude to produce 1 barrel of gasoline. In addition to the cost of crude oil, there are other costs of refining crude into gasoline. Total costs of producing y barrels of gasoline are described by the cost function c(y) = y² + p_oy, where p_o is the price of a barrel of crude.

1. A. What is the short-run firm supply curve? Plot the supply curve on a diagram where the vertical axis is the price of gasoline and the horizontal axis is the barrels of gasoline.
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3. B. Suppose crude oil is $20 per barrel and there is a horizontal demand curve for gas at $40 per barrel. How much will the refinery supply? Suppose the price of crude oil rises to $25 per barrel and there is a horizontal demand curve for gas at $50 per barrel. How much will the refinery supply?

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A Shortrun supply curve is nothing inv... View the full answer