Change in Oil Production Costs Analysis

Quantity (barrels of oil) Oil Pump One Marginal Cost Oil Pump Two Marginal Cost 1 $5 $10 2 10 12 3 15 14 4 20 15 5 25 18 6 30 20 7 35 22 Suppose that this market is producing 6 barrels of oil from Oil Pump One and 2 barrels of oil from Oil Pump Two. What happens to the total costs of production if we produce 1 less barrel of oil from Oil Pump One and 1 more barrel of oil from Oil Pump Two? What is the best answer

The total costs of production fall by $16. The total costs of production fall by $30. The total costs of production rise by $7. The total costs of production rise by $14.

To determine the change in total costs of production when producing 1 less barrel of oil from Oil Pump One and 1 more barrel of oil from Oil Pump Two, we need to compare the marginal costs of the barrels being produced.

Currently, the production is:

• Oil Pump One: 6 barrels
• Oil Pump Two: 2 barrels

Current Costs:

• For Oil Pump One (6 barrels): The marginal cost of the 6th barrel is $30.
• For Oil Pump Two (2 barrels): The marginal cost of the 2nd barrel is $12.

New Costs after the change:

• If we produce 1 less barrel from Oil Pump One (5 barrels), the marginal cost of the 5th barrel is $25.
• If we produce 1 more barrel from Oil Pump Two (3 barrels), the marginal cost of the 3rd barrel is $14.

Calculating the change in total costs:

1. Current cost of producing the 6th barrel from Oil Pump One: $30
2. New cost of producing the 5th barrel from Oil Pump One: $25
3. Current cost of producing the 2nd barrel from Oil Pump Two: $12
4. New cost of producing the 3rd barrel from Oil Pump Two: $14

Total cost change:

• Cost decrease from Oil Pump One: $30 (for the 6th barrel) - $25 (for the 5th barrel) = $5 decrease
• Cost increase from Oil Pump Two: $14 (for the 3rd barrel) - $12 (for the 2nd barrel) = $2 increase

Net change in total costs:

• Total change = Cost decrease from Oil Pump One - Cost increase from Oil Pump Two
• Total change = $5 (decrease) - $2 (increase) = $3 decrease

Since the options provided do not include a decrease of $3, let's re-evaluate the options based on the calculations:

• The total costs of production fall by $16.
• The total costs of production fall by $30.
• The total costs of production rise by $7.
• The total costs of production rise by $14.

None of these options match our calculated decrease of $3. However, if we consider the closest option, it seems that the calculations might have been misinterpreted or the options provided do not align with the calculations.

Based on the calculations, the total costs of production should fall, but the exact amount does not match any of the provided options. If we strictly follow the calculations, the answer would be that the total costs of production fall, but the exact amount is not listed.

If we had to choose the best answer from the options provided, we would note that the total costs are indeed falling, but none of the options accurately reflect the calculated change.