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.

Coke and Pepsi dominate the cola market. Suppose that the marginal cost of making cola is $2. Assume also that the demand for cola is given by the following table: Price $8 7 6 5 4 3 2 1 Quantity 5 cans 6 7 8 9 10 11 12 Suppose Coke and Pepsi both supply cola. They form a cartel and agree to cooperate on how much soda to produce. In this cartel case, how many bottles of cola would be sold? Type your answer...

14. Aside from advertising, how can monopolisticallycompetitive firms increase demand for their products? 17. Would you expect the kinked demand curve to bemore extreme (like a right angle) or less extreme (like anormal demand curve) if each firm in the cartel producesa near-identical product like OPEC and petroleum?What if each firm produces a somewhat differentproduct? Explain your reasoning.

4. Imagine a market with demand P = 420 – Q in each period. Two firms are thinking about colluding. They each have cost C(Qi) = 60Qi. If they cooperate and behave as a monopoly, then they have a marginal revenue curve, MRm = 420 – 2Q, and a marginal cost curve, MCm = 60. If they are in a cartel, then the firms will split the monopoly production and profits. If they compete, then they face MRi = 420 – 2Qi – Q-I and MCi = 60. a. If the firms stick to their agreement (cooperate), how much per-period profit do they each make? b. If they are not able to maintain their agreement (compete), what is their per-period profit? c. If one firm cheats on their agreement (deviate), how much does each firm make? Be sure to specify both the profit for the cheater and the firm cheated-on. d. Suppose the firms assume that their interaction will last forever (r = 1) and they share the common discount value R. What is the lowest value of R such that both firms are willing to continue with the cartel…