Bundle: Microeconomics, 13th + Aplia, 1 Term Printed Access Card
13th Edition
ISBN: 9781337742535
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 11, Problem 5QP
To determine
Determine whether the cartel formation is more likely to be in the industry composed of few firms or many firms.
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What is a cartel? Explain the coordination problem it faces.
OPEC is a petroleum cartel, a group of oil producing countries whose objective is to coordinate and unify petroleum policies. What type of market structure is a cartel?
Why are cartel agreements often not successful?
Different firms experience different costs.
All parties would make more money if everyone increased production.
One party has an incentive to cheat to make more profit?
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Bundle: Microeconomics, 13th + Aplia, 1 Term Printed Access Card
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- Explain in detail how does a cartel operate.arrow_forwardWhat is the primary reason that cartels fail to work? Becoming a cartel reduces barriers to entry for new firms. It is trivial for one firm to force the other cartel members out of the market and become a monopoly. Firms in a cartel can increase their profits by breaking the agreements made with the other cartel firms. Anti-trust law is quick to break up cartels. Operating as part of a cartel is more expensive and reduces profits.arrow_forwardIs it possible that the violent members of the drug cartels can behave like cartels in legitimate markets?arrow_forward
- Discuss a cartel, how it works and problems it faces.arrow_forwardIf South Africa increased its production by 1,000 diamonds while Russia stuck to the cartel agreement, South Africa's profit would $ to Why are cartel agreements often not successful? Different firms experience different costs. One party has an incentive to cheat to make more profit. All parties would make more money if everyone increased production.arrow_forwardWhy has the OPEC oil cartel succeeded in raising prices substantially while the CIPEC copper cartel has not? What conditions are necessary for successful cartelization?arrow_forward
- Discuss the possible deviations from perfect competition and then focus on oligopolies. How can cartels coordinate to affect markets? What affects antitrust enforcers’ ability to detect cartels? Discuss with reference to one or more examples.arrow_forwardWhich of the following would be cases of cartels? Check All That Apply Ford Motor Company OPEC Major League Baseball Major League Baseball The restaurant industry DeBeers Microsoftarrow_forwardA certain rural village has numerous small farms which raise livestock. There are two large and equally sized landowners, Jimmy and Bob, which produce hay for the farmers’ animals. Below is the daily village demand for hay Suppose, for simplicity, that Jimmy and Bob have the same constant cost structure, so maximizing total revenue maximizes profit. If Jimmy and Bob initially form a cartel, but subsequently succumb to the temptation to cheat on each other, what will be the Nash equilibrium? Jimmy and Bob will each earn a daily profit of $625. Jimmy will earn a daily profit of $700 and Bob will earn a daily profit of $500. Bob will earn a daily profit of $700 and Jimmy will earn a daily profit of $500. Jimmy and Bob will each earn a daily profit of $525.arrow_forward
- Isolated Island has two natural gas wells, one owned by Tom and the other owned by Jerry. Each well has a valve that controls the rate of flow of gas. The marginal cost of producing gas is $12 a unit. The table gives the demand schedule for gas on this island If Tom and Jerry form a cartel and maximize their joint profit, what will be the price of gas and the total quantity produced? If Tom and Jerry form a cartel and maximize their joint profit, the price of a unit of gas is $ and the quantity produced is units a day Q Search Price (dollars per unit) 36 33 30 27 24 21 18 15 Quantity demanded (units per day) 0 1 2 3 4 5 6 7 Nextarrow_forwardAt a busy intersection, there are four gas stations – one on each corner. Each of the gas stations always charges the same price as the others (that price goes up and down as changes in supply and demand warrant, but each station always charges the same price as the others charge). Does this sameness in pricing indicate that the gas stations have formed a cartel, or is there some other – more likely – explanation for why all of these gas stations charge the same price? Explain your answer.arrow_forwardSuppose that two identical firms produce widgets and that they are the only firms in the market. The average and marginal cost is €6 for each firm. Price is determined by the following demand curve: P = 30 – Q where Q = Q1 + Q2. Suppose the two firms combine together and form a cartel. The output produced by each firm in the cartel is (assuming that they split the cartel output equally between them) A. 6 B. 12 C. 8 D. 4 Two identical firms compete in a market to sell a homogenous good with the following inverse demand function: P = 600 – 3Q. Each firm produces at a constant marginal cost of €300 and there are no fixed costs. The price that each firm in the Cournot equilibrium will charge is A. 400 B. 500 C. 300 D. 450arrow_forward
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