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- When deciding on output levels, members of a cartel
- set their output where MR = MC.
- produce the same level of output as if they were in a competitive market.
- take into account the impact of changes on members' profits.
- act as if they were
monopolies.
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- In the long run, an oligopoly Multiple Choice will produce less than a monopoly. may be able to earn positive economic profits. will always produce in the range of decreasing returns to scale. will produce on the portion of the demand curve where demand is price-inelastic.The following integrated series of questions relates to several sections in the text. Scenario 2: Suppose a stream is discovered whose water has remarkable healing powers. You decide to bottle the liquid and sell it. The market demand curve is linear and is given as follows: P = 30 -Q The marginal cost to produce this new drink is $3. Refer to Scenario 2. What will be the price of this new drink in the long run if the industry is a Cournot duopoly? A. $3 В. $9 C. $13.50 D. $12 E. None of the aboveIn cases where a cartel controls access to a key production input, firms in the cartel: have less incentive to cheat for fear that they will be cut off from the key input. will always have an incentive to cheat on the agreement, as cheating increases profits. are typically good at finding ways to access the key input outside the cartel. will never cheat on the cartel agreement.
- A group of firms explicitly colluding to make price and output decisions is called a ) price leadership. b ) a cartel. c ) a concentrated industry. d ) an oligopoly.Breakdown of a cartel agreement Consider a town in which only two residents, Darnell and Eleanor, own wells that produce water safe for drinking. Darnell and Eleanor 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. (base to table 1) Suppose Darnell and Eleanor 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, Darnell and Eleanor agree to split production equally. Therefore, Darnell's profit is $_______, and Eleanor's profit is $______. Suppose that Darnell and Eleanor have been successfully operating as a cartel. They each charge the monopoly price and sell half of the monopoly quantity. Then one night before going to sleep, Darnell says to himself, "Eleanor and I aren't the best of friends anyway. If I increase my production to 45 gallons more than…When tacit collusion breaks down and prices collapse, the result is: a price war. formation of a cartel. price leadership. higher profits for the industry as a whole.
- Which of the following methods could a cartel NOT use to prevent its member fırms from breaking their agreements? If a member fırm breaks its agreement, it is a breach of contract and the firm is subject to legal penalties. The cartel acts as a monopolist, maximizing the combined profits of all the member firms. All of the other choices could be used to prevent member firms from breaking agreements. The cartel requires member firms to structure executive pay in such a way that the executives benefit personally from preserving the cartel. If a member firm breaks its agreement, that firm is kicked out of the cartel permanently and can no longer earn cartel profits in the future.In perfectly competitive markets, there are so many firms that no one firm can influence price. If any of them try to raise their prices above their competitors’ prices, their customers simply switch and buy their competitors’ products. Monopolies are at the other end of the market spectrum. In a pure monopoly, there is only one firm that services the entire market. A pure monopolist can influence price by varying its level of output until it reaches the level of output that results in the highest level of profit for the firm. Please answer the following questions: What advantages do monopolies have for the economy? What disadvantages do monopolies have for the economy?Cartels have a difficult time maintaining their output agreements because an individual firm has an incentive to deviate (increase their output) from the arrangement. T/F
- I am trying to sell widgets and have determined the supply and demand functions to be: Supply price (quantity)=4+quantity Demand price (quantity)=106-2*quantity Find the equilibrium price and quantity and producer revenue. Find the producer and consumer surpluses when the shirts are sold at the equilibrium price. If the producers form a cartel, find the price that maximizes producer surplus. To find equilibrium equal the equation to gatherwe had two buyer types for pharmaceuticals. One with inverse demand P = 8 – 0.25Q, and one with inverse demand P = 4 – 0.1Q. Marginal cost of the monopolist was constant and equal to 2. If the monopolist cannot price discriminate (so they charge a single price to everyone), show whether their profits are higher serving only the high demand market, or serving both markets. Show whether consumer surplus is higher or lower with or without price discrimination at the monopolist’s optimal solution in either case.Managers now note that explicit agreements to collude are illegal. Each company must decide on its own whether to produce the amount of Cournot or that of the cartel.
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