Answer to Question #67922 in Microeconomics for Heisenberg

Question

The market for gasoline is in equilibrium. OPEC, one of the principal producers (with the power to displace the supply curve) decides to increase the size of the revenue of its members by increasing the supply. Assuming the supply of gasoline is fairly inelastic, analyze ( graphically, with comments on the results that you acquire) how this decision will decision will affect the total revenue of the gasoline producers if:
i. Demand for gasoline is perfectly elastic
ii. Demand for gasoline is perfectly inelastic
iii. Demand for gasoline is unit elastic

Answer 1

If the supply of gasoline is fairly inelastic, then:
i. Demand for gasoline is perfectly elastic - should decrease supply to increase total revenue.
ii. Demand for gasoline is perfectly inelastic - should increase supply to increase total revenue.
iii. Demand for gasoline is unit elastic - the changes in supply will not cause any changes in total revenue.