Question: James Pizzo is president of a firm that is the price leader in the industry; that is, it sets the price and the other firms sell all they want at that price. In other words, the other firms act as perfect competitors. The demand curve for the industry’s product is

P = 300 – Q

where P is the price of the product and Q is the total quantity demanded,. The total amount supplied by the other firms is equal to Qr, where Qr = 49P. (P is measured in dollars per barrel: Q, Qr, and Qb are measured in millions of barrels per week.)

a) If Pizzo’s firm’s marginal cost curve is 2.96Qb, where Qb is the output of his firm, at what output level should he operate to maximize profit?

b) What is the market price per barrel?