Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Chapter 10, Problem 17CTQ

Would you expect the kinked demand curve to be more extreme (like a right angle) or less extreme (like a normal demand curve) if each film in the cartel produces a near-identical product Like OPEC and petroleum? What if each film produces a somewhat different product? Explain your reasoning.

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Suppose that a price-taker firm has a marginal cost function given by: MC= 20+0.2q. The firm could join a cartel in its industry and agree to a quota of 10 units. The collusion drives the price of the good from $24.55 to $50.00. Suppose that if the firm cheats on the cartel, it has no effect on the price. Calculate the producer surplus of this firm when they cheat on the cartel.
The Organization of Petroleum Exporting Countries (OPEC) is a cartel that attempts to keep oil prices high by restricting output. As part of that process, each member nation is assigned a production quota; most members have nationalized their oil industry so that the government controls overall production. However, member nations routinely exceed their production targets. Why might OPEC often have difficulty keeping output low and prices high? Oil production costs differ greatly among OPEC members. More politically stable OPEC members (e.g., monarchies) have little incentive to take a long view and so often act to achieve short-run gains. It's very difficult for OPEC to punish cheaters. It's very difficult for OPEC to detect cheaters.
Your pharmaceutical firm is seeking to open up new international markets by partnering with various local distributors. The different distributors within a country are stronger with different market segments (hospitals, retail pharmacies, etc.) but also have substantial overlap. a. In Egypt, you calculate that the annual value created by one distributor is $60 million per year, but would be $80 million if two distributors carried your product line. How much of the value can you expect to capture? b. Argentina also has two distributors with values similar to those in Egypt, but both are run by the government. How does this affect the amount you could capture? c. In Argentina, if you do not reach an agreement with the government distributors, you can set up a less efficient Internet-based distribution system that would generate $20 million in value to you. How does this affect the amount you could capture?
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