Microeconomics
13th Edition
ISBN: 9781337617406
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 11.3, Problem 1ST
To determine
Explain the specific incentive to form the cartel and the incentive to cheat on the cartel.
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"Firms have an incentive to form a cartel but once it is formed, they have an incentive to cheat" Explain the incentives 'to form the cartel', and 'to cheat after forming the cartel'
“Firms have an incentive to form a cartel,but once it is formed,they have anincentive to cheat”Explain the incentives‘to form the cartel’,and‘to cheat after forming the cartel’.
A 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…
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- 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?arrow_forwardIf south africa increased its production by 1,000 diamonds while russia stuck to the cartel agreement, south africa's profit would Increase or decrease . Why are cartel agreement often not successful? choose on below: a. one party has an incentive to cheat to make more profit. b. different firms experience different cost c. all parties would make more money if everyone increased productionarrow_forwardIn the United States cartels arearrow_forward
- The demand for a product is Q = 100 P. Initially the marginal cost is MC0 = 40 and the price is P0 = 40. (a) What is the total surplus and If a cartel forms, the price rises to P1 = 70, and the marginal cost stays the same at MC1 = 40. What is the total surplus with a cartel? (b) If a merger happens, the price would become P2 = 70 and the marginal cost would become MC2 = 30. What is the total surplus after the merger? (c) Consider again the merger. Keeping all the others parameters fifixed, for what values of P2 should the merger be allowed? (Your can say something like “the merger should be allowed if P2 is more than 50”, or “the merger should be allowed if P2 is less than 50”.)arrow_forwardIn 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.arrow_forward7, What is a cartel and what are the principal activities the cartels are involved in (that is what tasks do the cartel managers pursue in order to be successful)? Briefly for managerial economics classarrow_forward
- Is it possible that the violent members of the drug cartels can behave like cartels in legitimate markets?arrow_forwardWhy Cooperation in the oligopoly (cartel) market cannot last long, what are the causes?arrow_forwardWhat is a cartel? In what way is an analysis of cartel similar to an analysis of a monopolyarrow_forward
- Which of the following would be cases of cartels? Check All That Apply Ford Motor Company OPEC Major League Baseball Major League Baseball The restaurant industry DeBeers Microsoftarrow_forwardDescribe the source of tension between cooperation and self interest in a market characterised by oligopoly. Use an example to show why this tension causes instability in cartels in a few sentencesarrow_forward8, Cartels which are not backed by strong legal provisions (sanctions) are likely to have a short and turbulent life. Explain why? Briefly for managerial economics classarrow_forward
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