How to Maximize Revenue for an Oil-Producing Country?

What is the relationship between price and sales for an oil-producing country selling 7 million barrels of oil a day?

The country can sell 7 million barrels of oil a day at a price of $90 per barrel. If each $1 price increase results in a sales decrease of 100,000 barrels per day, how can we determine the price that will maximize the country's revenue?

Explanation:

To maximize revenue for an oil-producing country, we need to establish the relationship between price and sales. In this scenario, the country can sell 7 million barrels of oil a day at a price of $90 per barrel. However, for every $1 increase in price, the sales decrease by 100,000 barrels per day.

Analysis:

Let's analyze the impact of price changes on revenue for the oil-producing country. Initially, the country sells 7 million barrels a day at $90 per barrel, resulting in a revenue of $630 million/day. For each subsequent $1 increase in price, the country experiences a decrease in sales volume, leading to a decline in revenue.

For example, at $91 per barrel, sales would decrease to 6.9 million barrels/day, resulting in a revenue of $627.9 million/day. Similarly, at $92 per barrel, sales would further decrease to 6.8 million barrels/day, with revenue amounting to $625.6 million/day.

By continuing this calculation for different price points, it becomes evident that as the price increases, the revenue decreases. Therefore, the price that maximizes revenue for the country is the initial price of $90 per barrel.

By maintaining a price of $90 per barrel, the country can sell the maximum number of barrels of oil each day and generate the highest revenue possible. This strategic pricing approach ensures that the country optimizes its revenue potential in the oil market.