Change in Total 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?

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.

1. Current Production:

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

2. Marginal Costs:

   • For Oil Pump One (6 barrels): $30
   • For Oil Pump Two (2 barrels): $12

3. Change in Production:

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

4. New Marginal Costs:

   • For Oil Pump One (5 barrels): $25
   • For Oil Pump Two (3 barrels): $14

5. Calculating Total Costs:

   • Current Total Cost:

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

   • New Total Cost:

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

6. 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. However, if we consider the marginal costs of the barrels being produced, we can see that the total costs decrease when switching production from a higher marginal cost barrel to a lower marginal cost barrel.

If we were to analyze the options again, it seems there might be a misunderstanding in the calculations or the options provided. Please double-check the marginal costs and the quantities to ensure accuracy.