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If in theory collusion is good for the members of a cartel, give at least three reasons why in practice collusion is not widespread
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- A 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.Why has the OPEC oil cartel succeeded in raising prices substantially while the CIPEC copper cartel has not? What conditions are necessary for successful cartelization?Assume the management of two large firms selling canned vegetables hold a secret meeting to create a collusive cartel. Which will most likely be the outcome of that meeting, assuming both companies engage in the collusion? soda output will fall and market prices will fall market price will remain unchanged and total output will fall soda output will fall and market prices will rise soda output will rise and market prices will fall soda output will rise and market prices will rise
- In order to be successful, a cartel must find a way to encourage members to produce more than they would otherwise produce. agree on the total level of production for the cartel, but they need not agree on the amount produced by each member. agree on the total level of production and on the amount produced by each member. agree on the prices charged by each member, but they need not agree on amounts produced.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?Suppose 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. 450
- Which of the follow industries is the best example of an existing cartel? Group of answer choices Microsoft and Apple—two of the largest computer manufacturers Verizon and AT&T—two of the largest American mobile phone service providers GM, Chrysler, Ford—The big three American automobile companies OPEC, the Organization of Petroleum Exporting CountriesIn a Cournot duopoly, each firm has marginal cost MC=20, and market demand is Q=100-0.5p. What are the best response functions of each firm? What is the best output level for each? How does the total output level compare to the cartel output level?Producers in three countries have formed a cartel to sell a highly-priced product. Suppose the world demand for the product is consistent with the equation: P=80-0.005QT NB: QT is the total cartel sales. The producers have managed to maximise profit at a price of R70 per unit. Suppose the members have the following total cost functions; Member 1: TC=7382 + 10Q + 0.05Q2 Member 2: TC= 9374 + 20Q + 0.02Q2 Member 3: TC=7432 + 30Q + 0.03Q2 : Derive: a) Marginal revenue b) Output of member 1,2 and 3 c) Total cartel output.