Answered: QUESTION 3 Suppose the demand for oil…

QUESTION 3 Suppose the demand for oil is P-125Q-0.20. There are two oil producers who do not cooperate. Producing oil costs $11 per barrel. What is the profit of each cartel member? 55

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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UCOM is able to purchase an exclusive right to sell a soccer channel (SC) in its market area. Let's assume that UCOM pays $150,000 a year for the exclusive marketing rights to SC. Since UCOM has already installed cable to all of the homes in its market area, the marginal cost of delivering Soccer Channel to subscribers is zero. The manager of UCOM needs to know what price to charge for the Soccer Channel service to maximize her profit. Before setting price, she hires an economist to estimate demand for the Soccer channel service. The economist discovers that there are two types of subscribers who value soccer. First are the 4,000 die-hard soccer fans who will pay as much as $150 a year for the new soccer channel. Second, the soccer channel will appeal to about 20,000 occasional TV viewers who will pay as much as $20 a year for a subscription to soccer channel. What is the deadweight loss associated with the non-discriminating pricing policy compared to the price discriminating…
Q16 Suppose we are referring to OPEC, the oil cartel. Which would make it easier to maintain an effective collusive agreement among OPEC members? Multiple Choice the emergence of a number of potential entrant firms a decrease in the elasticity of demand for the OPEC's oil a new method of pricing that makes it more difficult for cartel members to determine the prices at which other cartel members are selling oil an increase in the number of substitutes for the oil produced by the OPEC cartel a pledge of allegiance to the cartel
Price $10 8 O 4 2 MR Supply Demand I 1 0 2 4 6 8 10 Quantity Refer to the figure above. If the market had been competitive but was taken over by a cartel, as depicted in the figure above, then we would expect output to increase from 5 to 10. increase from 3 to 6. decrease from 6 to 3. decrease from 5 to 2.
4. Imagine a market with demand P = 420 – Q in each period. Two firms are thinking about colluding. They each have cost C(Qi) = 60Qi. If they cooperate and behave as a monopoly, then they have a marginal revenue curve, MRm = 420 – 2Q, and a marginal cost curve, MCm = 60. If they are in a cartel, then the firms will split the monopoly production and profits. If they compete, then they face MRi = 420 – 2Qi – Q-I and MCi = 60. a. If the firms stick to their agreement (cooperate), how much per-period profit do they each make? b. If they are not able to maintain their agreement (compete), what is their per-period profit? c. If one firm cheats on their agreement (deviate), how much does each firm make? Be sure to specify both the profit for the cheater and the firm cheated-on. d. Suppose the firms assume that their interaction will last forever (r = 1) and they share the common discount value R. What is the lowest value of R such that both firms are willing to continue with the cartel…
6. The cartel Consider a town in which only two residents, Rajiv and Simone, own wells that produce water safe for drinking. Rajiv and Simone can pump and sell as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's demand schedule for water. Price (Dollars per gallon) 6.00 Quantity Demanded Total Revenue (Gallons of water) (Dollars) 0 0 5.50 45 247.50 5.00 90 450.00 4.50 135 607.50 4.00 180 720.00 3.50 225 787.50 3.00 270 810.00 2.50 315 787.50 2.00 360 720.00 1.50 405 607.50 1.00 450 450.00 0.50 495 247.50 0 540 0 Suppose Rajiv and Simone form a cartel and behave as a monopolist. The profit-maximizing price is $ per gallon, and the total output is gallons. As part of their cartel agreement, Rajiv and Simone agree to split production equally. Therefore, Rajiv's profit is $ and Simone's profit is $ Suppose that Rajiv and Simone have been successfully operating as a cartel. They each charge the monopoly price and sell half of…