Which of the following is likely to hurt the success of a cartel? - the market demand faced by the cartel is somewhat inelastic - cartel members have cost advantages over non-cartel members in the same market - cartel supplies all (or nearly all) of the market's output of the good or service - cartel members expect to interact for a short period of time
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Which of the following is likely to hurt the success of a cartel?
- the market demand faced by the cartel is somewhat inelastic
- cartel members have cost advantages over non-cartel members in the same market
- cartel supplies all (or nearly all) of the market's output of the good or service
- cartel members expect to interact for a short period of time
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- Consider an industry that consists of 4 firms, all competing over the same market, given by the following demand equation: P=80-3Q All firms have the same Total Cost Function, given by: TC₁=10q,+2q Suppose the firms decide to collude and voluntarily restrict output and raise price, in order to increase profits. a) What price will be charged by the members of the cartel? Assume the head of the cartel is fair and distributes output q, equally among the 4 firms (since they have identical costs). b)What is the output of each individual firm? c) What is each individual firm's profit? We know that there is a built-in incentive for cartel members to cheat on the cartel. If, as a result, the cartel breaks down: d) What price will be charged in the market? e) Assuming each firm captures an equal share of the market, what now is each firm's output, q? f) What now is individual firm profit? g) Illustrate your answerConsider an industry with two firms, each having marginal costs and total costs equal to zero. The industry demand is P = 100 − Q where Q = Q1 + Q2 is total output. 1. Find the cartel output and cartel profits assuming that the firms share the profit equally. In cartels, firms behave as if they are a monopoly. Hence, the cartel quantity is at the point where MR = MC. After finding the quantity, use the demand curve to find the cartel price. And then calculate Π = T R − T C. Divide the total profit by 2 to find each firm's profit. 2. If each firm behaves as a Cournot competitor, what is firm 1's optimal output given firm 2's output? This part is asking the best response function of firm 1. Solve firm 1's profit maximizatin problem by setting its MC = MR. Then, express Q1 as a function of Q2. 3. Calculate the Cournot equilibrium output and profit for each firm. You have already solved firm 1's problem above. Now solve firm 2's problem. Then, solve BR functions simultaneously to get…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.
- The Organization of Petroleum Exporting Countries (OPEC) is an international cartel. If the cartel were to hire a consulting firm to monitor the production rates of member countries, the economic reason for this monitoring would be to Multiple Choice make sure that each member country is producing at an output level at which price equals marginal cost. make sure all the member countries produce at least their quotas so that there will be no oil shortage. detect those member countries that are depressing prices by producing more than their assigned quotas. make sure that the marginal revenue for the last barrel of oil sold by each member country is less than its price.Q16 Suppose we are referring to OPEC, the oil cartel. Which would make it easier to maintain an effective collusive agreement among OPEC members? Multiple Choice the emergence of a number of potential entrant firms a decrease in the elasticity of demand for the OPEC's oil a new method of pricing that makes it more difficult for cartel members to determine the prices at which other cartel members are selling oil an increase in the number of substitutes for the oil produced by the OPEC cartel a pledge of allegiance to the cartelSuppose 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
- Consider an industry with two firms, each having marginal costs and total costs equal to zero. The industry demand is P = 100 − Q where Q = Q1 + Q2 is total output. 1. Find the cartel output and cartel profits assuming that the firms share the profit equally. Hint: In cartels, firms behave as if they are a monopoly. Hence, the cartel quantity is at the point where MR = MC. After finding the quantity, use the demand curve to find the cartel price. And then calculate Π = T R − T C. Divide the total profit by 2 to find each firm’s profit. 2. If each firm behaves as a Cournot competitor, what is firm 1’s optimal output given firm 2’s output? Hint: This part is asking the best response function of firm 1. Solve firm 1’s profit maximizatin problem by setting its MC = MR. Then, express Q1 as a function of Q2. 3. Calculate the Cournot equilibrium output and profit for each firm. Hint: You have already solved firm 1’s problem above. Now solve firm 2’s problem. Then, solve BR functions…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 riseWhat is the primary difference between oligopolistic "coopetition" and cartel behavior? Group of answer choices A. Oligopolistic firms work together to set prices and cartels do not B. One firm has most of the power in oligopolistic coopetition, while cartels share power C. One firm has most of the power in a cartel, while oligopolistic firms share power D. Cartels work together to set prices and oligopolistic firms do not
- Q27 The Competition Bureau in Canada wants to increase competition and reduce monopoly power. Thus it it worries about industry concentration in Canada. Assume there is an oligopoly in Canada in the production of Computer Aided Design (CAD) machines which also has a cartel. Which of the following will make it easier for the Canadian cartel to operate effectively over time? Multiple Choice Demand for the CAD cartel's output becomes more elastic. The number of substitutes for the CAD cartel's output increases. get organized crime in involved in the production of CAD. Each member firm of the CAD cartel observes the pricing and output decisions of other firms in the CAD cartel. Demand for the CAD cartel's output decreases.A two-firm cartel producing industrial diamonds faces the following demand function: Q=120-10P The total cost function of each firm is TC1 = 4Q1 + 0.1Q12 and TC2 = 2Q2 + 0.1Q22 a, Find the output and profit of each firm and total profit of cartel that maximize total profits b, Find the output and profit of each firm and total profit of cartel that maximize total revenuesOPEC 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?