Answer to Question #330350 in Microeconomics for Rohan

Question

1During the winter of 2004–2005, wholesale gasoline prices rose rapidly. Although retail gasoline prices increased, retailers’ profit per gallon fell. The difference between price and average variable cost for self-serve regular gasoline averaged RUPEES 7.7 a CRORE in the first quarter of 2005 compared with 9.1CRORE for all of 2004. In addition, many gasoline retailers exited the market.

A)Show how an increase in wholesale gasoline prices affects the individual retailer’s marginal cost and supply curves. 

B) Show how shifts in the individual retailer’s supply curves affect the market supply curve.

C)Show and explain why an x per gallon increase in wholesale gasoline prices results in a retail market price increase that is less than x.

d. Identify the effect of wholesale gasoline price increases on the profit margins of an individual gasoline retailer. 

E)Why has the increase in wholesale gasoline prices prompted many gasoline retailers to exit the market?