Change in Total Production Costs Analysis

Table: Oil Pumps

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?

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 look at the marginal costs associated with these changes.

1. Current Production:

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

2. Change in Production:

   • Reduce Oil Pump One by 1 barrel (from 6 to 5 barrels)
   • Increase Oil Pump Two by 1 barrel (from 2 to 3 barrels)

3. Marginal Costs:

   • For Oil Pump One (reducing from 6 to 5 barrels):
     • Marginal Cost of 5 barrels = $25
   • For Oil Pump Two (increasing from 2 to 3 barrels):
     • Marginal Cost of 3 barrels = $14

4. Calculating Total Costs:

   • Current Total Cost:

     • Oil Pump One (6 barrels): $30 (marginal cost of 6 barrels)
     • Oil Pump Two (2 barrels): $12 (marginal cost of 2 barrels)
     • Total Cost = $30 + $12 = $42

   • New Total Cost:

     • Oil Pump One (5 barrels): $25 (marginal cost of 5 barrels)
     • Oil Pump Two (3 barrels): $14 (marginal cost of 3 barrels)
     • Total Cost = $25 + $14 = $39

5. Change in Total Costs:

   • Change in Total Cost = New Total Cost - Current Total Cost
   • Change in Total Cost = $39 - $42 = -$3

Since the total costs of production fall by $3, none of the provided options are correct. Please double-check the options or the calculations.