Macroeconomic: Economics and Gas Oil

1221 words 5 pages
Russ Graziano
ECON 545
Keller Graduate School of Management
April 13, 2014

Introduction The idea Edgar has for opening up four new gas stations is based on a well based argument making it viable as a profitable business venture. The evaluation on the American consumer to accept the high price for gas oil prices forms the first approach towards establishing a business. Gasoil businesses in the world run as cartel where it supply and prices are determined by the few stakeholders in the industry. The stakeholders form an agreement among their competitors on the price, making and, marketing of the product (Fredy, 2010). The cartel though the production affects the GDP
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Demand is as the amount of a commodity that consumers are willing and can purchase at any given price over a given time (Tayor, 2007). The law states that, at low prices, the need is high. The firm being an oligopoly has rigidity in its price of the gas oil. Rigidity represents stickiness in the prices that does not change regularly. Edgar will enjoy the high prices of the oligopoly market as the American consumer has accepted the prices. The high prices are as due to the kinked demand curve as oligopoly market has two demand curves. A highly elastic demand curve on the price increase and a highly inelastic in the price decrease (Tayor, 2007).

D d MC
Price d KINK P1 E P X D d y Q1 D Quantity Q MR The elastic part of the curve is the dd curve thus an increase in price will lead to a rise in demand for the gas oil. A similar case to the market, if China and India increase their market the prices will also increase. A profit in the oil industry enjoys in the point where MR marginal revenue curve cuts the MC marginal cost curve. At this point, marginal revenue is equates the marginal cost and the profit is at maximum (Tayor, 2007). The supply also affects the oil industry, and it is the amount a producer is willing and can sell at a given price in a given time (Derik, 2010). In the supply of the gas oil collusion remains evident to increase market


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