On Commodity Exchange a It Is Possible to Buy and Sell

question 13

Multiple Choice

On Commodity Exchange A it is possible to buy and sell crude oil at $117 per barrel,while on Commodity Exchange B crude oil can be bought and sold at $118 per barrel.If there are transaction costs of 1% when buying or selling on either exchange,what is the net effect of buying a barrel of oil on Exchange A and selling it on Exchange B?

• A)-$1.35
• B)-$0.17
• C)$0.99
• D)$1.01
• E)$1.00

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Definitions:

Marginal Cost Curves

A graphical representation that shows how the marginal cost of producing an additional unit changes with the quantity produced.

AVC

Average Variable Cost, which is the variable cost per unit of output.

Long-run Equilibrium

A state in which all factors of production and costs are variable, leading to a situation where economic profits have been normalized or eliminated due to competition.

Constant Costs

Costs that do not change with the level of output or activity within a certain range.