5. The oil cartelThe Organization of Petroleum Exporting Countries (OPEC) is a group of 12 member countries that formed a cartel to sell petroleum on the worldmarket. They support prices higher than would exist under more competitive conditions to maximize member-nation profits and restrict competitionamong themselves via production quotas.Suppose that OPEC does not exist and that the 12 oil-producing nations compete in the world market, which is perfectly competitive.On the following graph, use the black point (plus symbol) to indicate the industry's free market profit-maximizing output.Note: Dashed drop lines will automatically extend to both axes.PRICE (Dollars)1009080706050403020100MRMCDemand0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000OIL (Barrels per day).Next, suppose that the oil suppliers form a cartel.܀ ܂Free MarketCartel(?)On the previous graph, use the grey point (star symbol) to indicate the profit-maximizing price and total quantity produced by all cartel memberscombined.Suppose that the cartel sets a quota of 125 barrels per day for each cartel member. Assume for simplicity that all members have the same productioncapacity and that the average cost (AC) of producing the quota is $60 per barrel of oil.Given the cartel price of a barrel of oil (determined on the previous graph), each cartel member realizes a profit of $of oil produced.on the 125 barrelsSuppose one of the suppliers in the cartel has decided to cheat on the cartel arrangement and produce 240 barrels instead of 125 because this is thequantity where the cartel price is equal to the supplier's marginal cost. At this quantity, the average cost per barrel is $60. When the cartel price isequal to the supplier's marginal cost (MC), each cartel member is actually able to produce 240 barrels per day at the average cost (AC) of $60 perbarrel.Assuming that the cheating supplier is able to sell all 240 barrels at the cartel price before other suppliers realize there is a surplus of barrels in themarket, that supplier would now realize a profit of $

Perfect competitive market:In this market, there are large numbers of buyers and sellers. They sell…

5. The oil cartel The Organization of Petroleum Exporting Countries (OPEC) is a group of 12 member countries that formed a cartel to sell petroleum on the world market. They support prices higher than would exist under more competitive conditions to maximize member-nation profits and restrict competition among themselves via production quotas. Suppose that OPEC does not exist and that the 12 oil-producing nations compete in the world market, which is perfectly competitive. On the following graph, use the black point (plus symbol) to indicate the industry's free market profit-maximizing output. Note: Dashed drop lines will automatically extend to both axes.

5. The oil cartel The Organization of Petroleum Exporting Countries (OPEC) is a group of 12 member countries that formed a cartel to sell petroleum on the world market. They support prices higher than would exist under more competitive conditions to maximize member-nation profits and restrict competition among themselves via production quotas. Suppose that OPEC does not exist and that the 12 oil-producing nations compete in the world market, which is perfectly competitive. On the following graph, use the black point (plus symbol) to indicate the industry's free market profit-maximizing output. Note: Dashed drop lines will automatically extend to both axes.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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3. Breakdown of a cartel agreement Consider a town in which only two residents, Hubert and Kate, own wells that produce water safe for drinking. Hubert and Kate 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. is Price (Dollars per gallon) 5.40 4.95 4.50 4.05 3.60 3.15 2.70 2.25 1.80 1.35 $ 0.90 0.45 0 Suppose Hubert and Kate form a cartel and behave as a monopolist. The profit-maximizing price is $ per gallon, and the total output gallons. As part of their cartel agreement, Hubert and Kate agree to split production equally. Therefore, Hubert's profit is and Kate's profit is $ Quantity Demanded (Gallons of water) 0 25 50 75 100 125 150 175 200 225 250 275 300 Suppose that Hubert and Kate 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, Hubert says to himself, "Kate…
Question 35 (Table: Three-Country Oil Production) Refer to the table. Suppose that three countries are engaged in oil production. For simplicity, assume zero costs so that revenue equals profit. Assume that country A cheats on the cartel agreement by producing 200 more barrels than the other two countries. What is the resultant profit earned by country A? Market Price 6,000 Total Market Output 600 800 1,000 1,200 1,400 1,600 1,800 O 24,000 O 30,000 O 70,000 90 80 70 60 50 40 30
Assume that the market for oil is made up of two firms: Exxon Mobil and Chevron. Also assume that New England has dozens of breweries and each of these make beers with different tastes, colors, and aromas. Which of the following statements is true? The market structure for oil is an oligopoly, and the one for beer is monopolistic competition. The market structure for oil is monopolistic competition, and the one for beer is an oligopoly. The market structure for both oil and beer is an oligopoly. The market structure for both oil and beer is monopolistic competition.
3. Antitrust laws Cooperation among oligopolies runs counter to the public interest because it leads to underproduction and high prices. In an effort to bring resource allocation closer to the social optimum, public officials attempt to force oligopolies to compete instead of cooperating. Consider the following scenario: Suppose that two American investment banks negotiate a merger agreement because a financial crisis threatens to bankrupt both firms. This merger could potentially be stopped by a lawsuit brought by which of the following American institutions? O The Commerce Department O The Interior Department O The Defense Department O The Justice Department
Suppose that a small town has seven burger shops whose respective shares of the local hamburger market are (as percentages of all hamburgers sold): 26 percent, 24 percent, 20 percent, 12 percent, 9 percent, 6 percent, and 3 percent. Instructions: Enter your answers as a whole number. a. What is the four-firm concentration ratio of the hamburger industry in this town? Book percent Print b. What is the Herfindahl index for the hamburger industry in this town? erences c. If the top three sellers combine to form a single firm, what would happen to the four-firm concentration ratio and to the Herfindahl index? Four-firm concentration ratio = percent Herfindahl index =
4. We assume that there are two countries, X and Y, each has a monopolistically competitive Home Appliance Market. By using the data of the Table below, define and specify the main effects of the Krugman's Model. Home Appliance Home Appliance Market Market in Integrated Market in Country X Before Trade Country Y Before Trade After Trade Total Sales of Home 700,000 1,300,000 2,000,000 Appliance Number of firms Sales per firm Axarage Cost Price 8. 116,000 162,500 222,000 15,000 12,000 10,000 15,000 12,000 10,000
25: What are the Characteristics of a Oligopoly Market? 26: What are the Characteristics of a Monopoly Market? 27: What are Intellectual Property Rights?
5. Interpreting concentration ratios The following table shows the four-firm concentration ratios of various industries. Industry Computer and electronic parts Greeting cards Photo equipment and supplies Plastics and rubber product manufacturing Coffee and tea manufacturing Four-Firm Concentration Ratio: 19 80 78 10.5 52.5 Based on the data presented in the table, in which of the following industries are sales most concentrated among the four largest firms? Plastics and rubber product manufacturing Greeting cards O Computer and electronic parts Photo equipment and supplies O Coffee and tea manufacturing
9. Antitrust laws Cooperation among oligopolies runs counter to the public interest because it leads to underproduction and high prices. In an effort to bring resource allocation closer to the social optimum, public officials attempt to force oligopolies to compete instead of cooperating. Consider the following scenario: Suppose that two American investment banks negotiate a merger agreement because a financial crisis threatens to bankrupt both firms. This merger could potentially be stopped by a lawsuit brought by which of the following American institutions? O The Defense Department O The Commerce Department O The Justice Department O The Interior Department
The Competition Bureau in Canada wants to increase competition and reduce monopoly power. Thus it it worries about industry concentration in Canada. Let's assume that the Canadian halibut processing industry there are only two firms(duopoly). Under such a market structure, if one of the halibut processing firm increases its price, then the other firm in the halibut processing industry can: keep the price of its processed halibut constant and thus increase its market share. keep its price of its processed halibut constant and thus decrease its market share. decrease its price of its processed halibut and thus decrease its market share. try to achieve economies of scale. increase its price of its processed halibut and thus increase its market share.