economics due in 18 hours

E251-29732, Graded Application Problem Set One Due no later than 10:00 p.m. Wednesday, March 24.

(Submit by uploading your work in the Canvas Quizzes, quiz: Graded Application Problem Set-1)

Page 1 of 2 Additional questions on next page.

Coordinating instructions: This is 1 of 2 graded application problem sets. It is worth up to 6 course percentage points. Both graded application problems sets will be worth up to 6 course percentage points. If you earn greater than 9 course percentage points on the combined graded application problem sets, then any course percentage points earned above 9 will count in your course grade as extra credit. Once you complete your work, create a “.pdf” file and upload to the canvas quiz called Graded Application Problem Set One. There will be one question in the quiz for your complete assignment to be uploaded. The submission quiz will open on Wednesday, March 3 and will remain open until 10:00 p.m., Wednesday, March 24. What you submit last is the one that is graded. Read the article: Shell to Wind Down Fossil-Fuel Output in Strategic Shift, By Sarah McFarlan, appeared in the Wall Street Journal, February 12, 2021, print edition.

• The article is available on the Canvas class site on the page “Graded Application Problem

Sets”

After you read the article answer the below questions and create a “.pdf” file to submit your answers in Canvas quizzes.

Question 1. What is the law of diminishing marginal returns? Does this law refer to a firm’s

production in the short run or the long run?

Question 2. From the article: “[Royal Dutch Shell] plans to cut its production of traditional fuels such as diesel and gasoline by 55% in the next decade… the company said it would double the amount of electricity it sells and roll out thousands of new electric-vehicle charging points.” Would Royal Dutch Shell’s decision to decrease production of fuels and increases its production of electricity be a long-run production decision because it will have occurred over “the next decade”? Briefly explain your answer.

Question 3. From the article: “Renewables projects typically generate returns of around 10%, compared with the traditional 15% targeted on oil-and-gas projects.” Assume that a firm chooses to invest in a renewable project that earns a 10 percent rate of return rather than an oil-and-gas project that would have earned a 15 percent rate of return.

E251-29732, Graded Application Problem Set One

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Would the firm earn an economic profit on the renewable project? Define economic profit and describe the difference between that and accounting profits as discussed in class. Briefly explain your answer.

Question 4. From the article: Royal Dutch Shell “… plans to cut its production of traditional fuels such as diesel and gasoline by 55% in the next decade. At the same time, the company said it would double the amount of electricity it sells…”

(a) Draw and label a graph that depicts a demand and supply curve in the market for diesel fuel.

(b) Draw another graph that depicts a demand curve and supply curve in the market for electricity.

(c) If other things remain equal, show the impact of Shell’s decision to change its

production of diesel fuel and electricity.

(d) Summarize the impact of these changes on the equilibrium price and quantity of diesel fuel and electricity.