Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Textbook Question
Chapter 10, Problem 17CTQ
Would you expect the kinked
Expert Solution & Answer
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Students have asked these similar questions
assuming that you own one of three gas stations in a little town and you and the other gas station owners decide you want to "help each other out" so everyone can make more money."
What arrangements could you make so that all three owners make more money?
Would these arrangements make the three gas stations a cartel?
Is it possible that the violent members of the drug cartels can behave like cartels in legitimate markets?
The diagram below illustrates the change in market equilibrium in the global oil market due to a demand shock, with the demand
curve shifting from Demand to Demand'. Supply of oil is provided by OPEC countries, as part of a cartel agreement, and other
countries outside the cartel,
P.
P.
Demand
Demand
Quantity, Q
Q Q.
Which of the following statements is/are correct?
global
a) If more countries joined OPEC, and reduced the quantity of oil that they produced as a cartel, it is possible that
market oil price could stay the same depending on other market dynamics.
b) The price of oil in the global market is fixed by the members of the OPEC cartel.
c) If there is increased production of oil in a non-OPEC country when demand is at Demand' there would be a reduction in price
from P1, ceteris paribus.
Chapter 10 Solutions
Principles of Economics 2e
Ch. 10 - Suppose that, due to a successful advertising...Ch. 10 - Continuing with the scenario in question 1, in the...Ch. 10 - Consider the curve in the figure below, which...Ch. 10 - Sometimes oligopolies in the same industry are...Ch. 10 - What is the relationship between product...Ch. 10 - How is the perceived demand curve for a...Ch. 10 - How does a monopolistic competitor choose its...Ch. 10 - How can a monopolistic competitor tell whether the...Ch. 10 - If the firms in a monopolistically competitive...Ch. 10 - Is a monopolistically competitive firm...
Ch. 10 - Will the firms in an oligopoly act more like a...Ch. 10 - Does each individual in a prisoners dilemma...Ch. 10 - What stops oligopolists from acting together as a...Ch. 10 - Aside from advertising, how can monopolistically...Ch. 10 - Make a case for why monopolistically competitive...Ch. 10 - Would you rather have efficiency or variety? That...Ch. 10 - Would you expect the kinked demand curve to be...Ch. 10 - When OPEC raised the price of oil dramatically in...Ch. 10 - Andreas Day Spa began to offer a relaxing...Ch. 10 - May and Raj me the only two growers who provide...Ch. 10 - Jane and Bill are apprehended for a bank robbery....
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- Describe how drug cartels are able to recruit new members when their members are murdered.arrow_forwardA film called The 33 tells the story of 33 coal miners in Chile who were trapped inside a collapsed coal mine for more than two months. While trapped inside the mine, the miners agreed that if they ever got out alive, they would sell their story as a group, and that none of them would tell their stories individually. In essence, they formed a cartel, agreeing to sell just one big story for a lot of money rather than each miner selling his own individual story. As it turned out, they did get out alive and they did stick to their agreement. None of the miners sold his story individually. That is, the “cartel” formed by these trapped coal miners worked; nobody cheated. Explain why this cartel, unlike almost all others, was successful. This is not a research question; you don’t have to have the factually correct answer to earn full credit on this question. Rather, a full-credit answer will explain the conditions under which a cartel will be successful and then indicate the specifics of…arrow_forwardWhat problems usually make cartels collapse? How was OPEC able to avoid this fate, at least through the mid-1980s?arrow_forward
- The Cartel Model: Iran and Iraq. For simplicity, let’s look at the production of just two members of the OPEC: Iran and Iraq. For further simplicity, let’s assume that there are only two production levels available: 2 or 4 million barrels of crude oil per day. Depending on their decision, the total output on the world market could be 4, 6, or 8 million barrels. Suppose the price could be $25, $15, and $10 per barrel respectively. Extraction costs are $2 per barrel in Iran and $4 per barrel in Iraq. a. Complete the payoff matrix (values in 000,000). Round up your answers to no decimals. Firm 2 Q = 2 Q = 4 Firm 1 Q = 2 , , Q = 4 , , b. The NE is(are): (Write A, B, C, D, or E) A. (Q = 2, Q = 2) B. (Q = 4, Q = 4) C. (Q = 2, Q = 4) D. (Q = 2, Q = 2) & A. (Q = 4, Q = 4) A. (Q = 4, Q = 2)arrow_forwardQ1 a) Briefly explain why the discount factor could credibly be interpreted as the probability of successful prosecution but not as an inflation rate. b) Briefly explain why you could calculate from the best-response function of a duopoly the profit of a cartel, that of a duopoly and that of a unilateral deviation from the cartel.arrow_forwardThe South American cocaine industry consists of several “families” that obtain the raw material, refine it, and distribute it to the USA. There are only about three large families, but there are several small families. What market structure does the industry most resemble? What predictions based on the market structures can be made about the cocaine business? How do you explain the lack of wars among the families?arrow_forward
- Suppose that a price-taker firm has a marginal cost function given by: MC= 20+0.2q. The firm could join a cartel in its industry and agree to a quota of 10 units. The collusion drives the price of the good from $24.55 to $50.00. Suppose that if the firm cheats on the cartel, it has no effect on the price. Calculate the producer surplus of this firm when they cheat on the cartel.arrow_forwardExplain how the military arms race between the United States and the former Soviet Union had the same formal structure as a prisoner's dilemmaarrow_forwardThe Organization of Petroleum Exporting Countries (OPEC) is a cartel that attempts to keep oil prices high by restricting output. As part of that process, each member nation is assigned a production quota; most members have nationalized their oil industry so that the government controls overall production. However, member nations routinely exceed their production targets. Why might OPEC often have difficulty keeping output low and prices high? Oil production costs differ greatly among OPEC members. More politically stable OPEC members (e.g., monarchies) have little incentive to take a long view and so often act to achieve short-run gains. It's very difficult for OPEC to punish cheaters. It's very difficult for OPEC to detect cheaters.arrow_forward
- Modeling a cartel as a prisoners’ dilemma game shows that ____________________ may be rational even if ____________________. non-cooperation; cooperation benefits everyone cooperation; cooperation benefits everyone cooperation; cooperation damages everyone non-cooperation; cooperation damages everyonearrow_forwardA 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.arrow_forwardCartels have a difficult time maintaining their output agreements because an individual firm has an incentive to deviate (increase their output) from the arrangement. T/Farrow_forward
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