Economics (MindTap Course List)
13th Edition
ISBN: 9781337617383
Author: Roger A. Arnold
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 24, Problem 4WNG
To determine
Determine the firm’s profit if it follows the cartel agreement and if it breaks the cartel agreement.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
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
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
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?
Chapter 24 Solutions
Economics (MindTap Course List)
Knowledge Booster
Similar questions
- 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. 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…arrow_forwardA 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 revenuesarrow_forwardQ27 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.arrow_forward
- 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.arrow_forwardCartels are the group that is created by the firms in the market to gain control over the prices and the entire goods market.arrow_forwardWhen deciding on output levels, members of a cartel set their output where MR = MC. produce the same level of output as if they were in a competitive market. take into account the impact of changes on members' profits. act as if they were monopolies.arrow_forward
- Q30 The Competition Bureau in Canada wants to increase competition and reduce monopoly power. Thus it it worries about industry concentration in Canada. If Canada's cannabis industry is a cartel, other things constant, a firm in the cannabis cartel will most likely cheat on a price-fixing agreement by: Multiple Choice increasing the price of cannabis and restricting its its output. organizing promotions of cannabis. secretly lowering price of cannabis and increasing sales of cannabis to a few customers. applying the prisoner's dilemma principle. secretly increasing sales of cannabis to a large number of small customers.arrow_forwardBreakdown of a cartel agreementarrow_forwardThe U.K. Office of Fair Trading has recently unveiled a plan that will offer immunity from prosecution to firms who blow the whistle on their co-cartel conspirators. In the United States, this tactic has proven extremely successful: Since its introduction in 1993, the total amount of fines for anticompetitive behavior has increased twentyfold. Show how the tactic initiated by the U.S. Department of Justice, soon to be followed by the U.K. Office of Fair Trading, changes the rules of the game played between firms in a secret cartel.arrow_forward
- 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 timearrow_forwardWhy has the OPEC oil cartel succeeded in raising prices substantially while the CIPEC copper cartel has not? What conditions are necessary for successful cartelization?arrow_forwardOne of the most famous cartels of the past 50 years is OPEC, the Organization of Petroleum Exporting Countries. The members of OPEC are countries rather than individual businesses. Oil Ministers from each of the countries meet regularly to establish how much each oil each country will produce each month (the amount each country agrees to produce is called its quota). Saudi Arabia is the largest oil-producing country in OPEC. Why does Saudi Arabia usually produce less than its quota each month?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning