Oil and gasoline prices are climbing. Energy company profits are surging. Yet, most U.S. oil businesses are not eager to capitalize on this moment by pumping more oil. Production of oil by U.S. energy companies is essentially flat and unlikely to increase substantially for at least another year or two.

A survey by the Dallas Fed found that U.S. companies need oil prices to average just $56 a barrel to break even, which is less that the current price of $78/barrel. But some are worried that the price could fall to as little as $50 by the end of the year.

1. (25) Oil is a globally traded commodity whose price per barrel is determined by global forces of demand and supply. A small individual oil company (such as those in Oklahoma) has no control over prices. If the price were to fall below the "break-even," level of $56 would it make sense for these small firms to continue to produce?Use a suitable diagram(s), to explain your reasoning.

Answer rating: 100% (QA)

Certainly Lets use a basic supply and demand diagram to analyze the situation Assumptions Q represen... View the full answer