Question

Suppose you are managing an oil refinery in a perfectly competitive market that converts crude oil into a particular mix of products, including gasoline, jet fuel, and residual fuel oil for home heating. Your refinery uses different processing units to turn crude oil into finished products. When a particular processing unit reaches capacity, output can be increased only by substituting a more expensive process. In particular, the marginal cost (MC) of producing as many as 4,000 barrels of output is MC(q)=0.001q; the marginal cost of producing between 4,000 and 6,000 barrels is a constant MC=4; and the marginal cost of producing 6,000 to 10,000 barrels is MC(q)=4+0.002(q−6,000) Using the line drawing tool, draw your refinery's marginal cost curve in the figure to the right. This curve will be comprised of three line segments labeled MC Segment 1​ ,M Segment 2 , and MC Segment 3

​ Carefully follow the instructions above, and only draw the required objects.

Answer 1

The marginal cost curve for the oil refinery is comprised of three line segments with different marginal costs at different production levels.

Step-by-step explanation:

The marginal cost curve for the oil refinery can be represented by three line segments. The first segment, MC Segment 1, has a marginal cost of 0.001q until a production level of 4,000 barrels. The second segment, MC Segment 2, has a constant marginal cost of 4 between 4,000 and 6,000 barrels. The third segment, MC Segment 3, has a marginal cost of 4+0.002(q-6,000) from 6,000 to 10,000 barrels.

Using this information, you can draw the marginal cost curve for the refinery by connecting the three line segments on the graph.