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- QUESTION 4 Suppose the demand for oil is P-123Q-0.20 There are two oil producers who do not cooperate, Producing oil costs $5 per barrel. What is the profit of each cartel member? ABreakdown of a cartel agreement Consider a town in which only two residents, Sean and Yvette, own wells that produce water safe for drinking. Sean and Yvette 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 Quantity Demanded Total Revenue (Dollars per gallon) (Gallons of water) (Dollars) 5.40 0 0 4.95 40 $198.00 4.50 80 $360.00 4.05 120 $486.00 3.60 160 $576.00 3.15 200 $630.00 2.70 240 $648.00 2.25 280 $630.00 1.80 320 $576.00 1.35 360 $486.00 0.90 400 $360.00 0.45 440 $198.00 0 480 0 Suppose Sean and Yvette 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, Sean and Yvette agree to split production equally. Therefore, Sean's profit is $ __________ , and Yvette's profit is __________ .…Isolated Island has two wind turbines producing electricity, one owned by Dick and the other owned by Harry. Quantity demanded (units per day) Price (dollars per unit) The marginal cost of producing electricity is $4 a unit. 12 11 1 The table gives the demand schedule for electricity in this area. 10 2 9 3 If Dick and Harry form a cartel and maximize their joint profit, what will be the price of electricity and the total quantity produced? 8 4 7 5 If Dick and Harry form a cartel and maximize their joint profit, the price of a unit of electricity is $ and the quantity produced is units a day. 6 7
- Pleasant Island has two natural gas wells, one owned by Mack and the other owned by Tom. Each well has a valve that controls the rate of flow of gas, and the marginal cost of producing gas is zero. The table below gives the demand schedule for gas on this island. Price (dollars per unit) $100 88888; 70 50 30 20 10 0 Quantity Demanded (units per day) If Mack and Tom form a cartel and maximize their joint profits, the price of gas on Pleasant Island will be $ If Mack and Tom are forced to sell at the perfectly competitive price, the price of gas on Pleasant Island will be $ 5 15 25 35 45 55 65 per unit. (Enter your response as a whole number) per unit (Enter your response as a whole number)6. Why might a monopolist advertise heavily for its product even though it isn't competing with any firm for market share?PRICE (Dollars per can) 2.00 1.80 1.60 Demand 1.40 1.20 1.00 + 0.80 0.60 0.40 0.20 MC=ATC MR 0 15 30 45 60 75 90 105 120 135 150 QUANTITY (Thousands of cans of beer) Monopoly Outcome When they act as a profit-maximizing cartel, each company will produce information, each firm earns a daily profit of $ cans and charge $ so the daily total industry profit in the beer market is $ per can. Given this Oligopolists often behave noncooperatively and act in their own self-interest even though this decreases total profit in the market. Again, assume the two companies form a cartel and decide to work together. Both firms initially agree to produce half the quantity that maximizes total industry profit. Now, suppose that Mays decides to break the collusion and increase its output by 50%, while McCovey continues to produce the amount set under the collusive agreement. Mays's deviation from the collusive agreement causes the price of a can of beer to $ while McCovey's profit is now $ Mays increases…
- 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…Price The graph below depicts the market demand curve faced by a hypothetical cartel operating in the US. Use the graph to highlight the area that represents the profits earned by the cartel. 100 90 80 70 60 50 40 30 20 10 0 0 D B Profit C A Marginal cost average cost Market demand Marginal revenue 1000 2000 3000 4000 5000 6000 7000 8000 900010000 Quantity If the US government decides to break up the cartel. Which of the following pieces of legislation could the cartel be prosecuted under? The Sherman Antitrust Act The First Amendment The Dodd Frank Act The Glass Stegall Act1. The cartel of copper exporting countries is called COPEC. As part of an international trade agreement, the United States has agreed to buy all the copper that COPEC wants to sell to the United States at a constant price of $100 per tonne. COPEC also sells copper in Europe at a price of $150 per tonne. COPEC acts just like a monopolist; if it finds it is profit maximising to sell in the United States at $100 per tonne and simultaneously to sell in Europe for $150 a tonne, what is the price elasticity of demand of COPEC’s copper in the European market? Carefully explain all the steps in the derivation of the value of the elasticity including the underlying economic theory approach behind it.
- The table shows the demand schedule for a particular product. Quantity Price 0 100 300 90 600 80 900 70 1200 60 1500 50 1800 40 2100 30 2400 20 2700 10 3000 0 Suppose the market for this product is served by two firms who have formed a cartel and are colluding to set the price and quantity in this market. If the marginal cost to produce this product is constant at $40 per unit, then what price will the cartel set in this market? a. $40 b. $50 c. $60 d. $70 e. $80PRICE (Dollars per can) 2.00 1.80 1.60 Demand 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0 0 MC = ATC MR 90 180 270 360 450 540 630 720 810 900 QUANTITY (Cans of beer) Monopoly Outcome $0.80 per can. Given this When they act as a profit-maximizing cartel, each company will produce 180 cans and charge information, each firm earns a daily profit of $144.00, so the daily total industry profit in the beer market is $288.00. Oligopolists often behave noncooperatively and act in their own self-interest even though this decreases total profit in the market. Again, assume the two companies form a cartel and decide to work together. Both firms initially agree to produce half the quantity that maximizes total industry profit. Now, suppose that Stargell decides to break the collusion and increase its output by 50%, while Schmidt continues to produce the amount set under the collusive agreement. Stargell's deviation from the collusive agreement causes the price of a can of beer to now $ , while Schmidt's…6. Breakdown of a cartel agreement Consider a town in which only two residents, Sean and Yvette, own wells that produce water safe for drinking. Sean and Yvette 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 Quantity Demanded Total Revenue (Dollars per gallon) (Gallons of water) (Dollars) 6.00 5.50 45 248 5.00 90 450 4.50 135 608 4.00 180 720 3.50 225 788 3.00 270 810 2.50 315 788 2.00 360 720 1.50 405 608 1.00 450 450 0.50 495 248 540
