Reference no: EM131405580

In the global market for oil, prices per barrel have declined from highs of $115/barrel in winter 2014 to less than $30/ barrel today ...one of the contributing factors to this decline has been Canadian and US production from oil shale. Most pundits thought that with full average cost of oil shale production between $55 and $80 per barrel...this oil shale supply would dry up. However, it hasn't dried up even though some of the least efficient mining sites have shut down in the US and Canada and (as the following quote from a Wall Street Journal article illustrates ) remaining oil producers despite increases in total production are not covering full average costs of  production.

"US and Canadian producers are losing at least $350 million a day at current prices."

Explain why oil shale production has not contracted much more dramatically, given these losses at current prices.  Use cost concepts such as marginal, variable and fixed cost in your answer. (Hint: oil extraction is a high up front fixed cost  industry...once those costs have appeared on balance sheets of oil producers, marginal costs remain low in many locations over a wide range of output.)