Recently, oil prices for some contracts (delivery in May 2020, Western Texas Intermediate) dropped as low as $40

Description

1. (5 Points) Negative Oil Prices

Recently, oil prices for some contracts (delivery in May 2020, Western Texas Intermediate) dropped as low as $40. Collect some facts and try to explain (with supply and demand, obviously) how this could have happened.

2. (5 Points) Selling bicycles

A bicycle seller in a competitive market has found out that his total cost curve is given by the following formula

T C = 100+b^3-15b^2 +85b, where b is the number of bicycles produced.

(a) Describe this technology in terms of increasing, decreasing, or constant returns to scale.

(b) What would be the bicycle seller’s profit maximizing level of output and how much profit will he earn if the price of a bicycle is 90 INR?

(c) What would be his profit maximizing level of output and how much profit will he earn if the price of a bicycle is 25 $? Explain!

3. (5 Points) Masks and Corona.

Suppose that all people can transmit the corona virus with a certain probability p to another person without knowing it. Furthermore, assume that wearing a face mask reduces the probability that you transmit the virus to another person to zero but does nothing to protect yourself (both of these assumptions are not true in reality). Catching the virus with probability p gives you a payoff of 100 p. Wearing a face mask is obviously inconvenient and reduces your payoff by 10.

(a) Model the situation as a simultaneous two-person game.

(b) What is the game theoretic prediction and why?

(c) What would help in this situation

4. (5 Points) Stimulus package.

As part of the Corona stimulus package, the Indian government decided to lower the GST, but only for the second half of 2020. Describe the likely effects of this move. What do you expect to happen in December 2020 and in January 2021?