Exercise 4-2) Elasticity and Revenue

Elasticity and Revenue

News Item of “The GLOBE AND MAIL”:

Mexican front-runner could open up oil sector to Canadian investors

Published Tuesday, May 29, 2012

http://www.theglobeandmail.com/commentary/editorials/mexican-front-runner-could-open-up-oil-sector-to-canadian-investors/article4217431/

Mexico’s energy industry is typically the market of monopoly so there are few competitors such as Canadian one. However, the front-runner in Mexico’s election has promised to remodel the industry, which is the voluntarily mood of the Mexican economy and would lead opportunities for foreign investors to pour the money.

  

Before that, Mexico’s energy industry has been leaded by Petroleos Mexicanos (Pemex) in which the monopoly market. In the case that demand increased, Pemex didn’t increase the production and then waited for increasing the market price. After market price reached higher, Pemex increased the quantity of production due to obtain higher benefits. It continues until the quantity reduces enough to enter the elastic portion of the demand curve.

Based on the typical action of company in the monopoly market, Pemex could get more and benefit up to a certain point. However, they faced new situation. In order to increase the quantity of production significantly for more benefits, they needed more development circumstance. Through the investment from foreign country, they may reinvest the enormous money for improving technical skills or making efficient production circumstance.