Economics (MindTap Course List)
13th Edition
ISBN: 9781337617383
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 24, Problem 5QP
To determine
Determine whether the cartel formation is more likely to be in the industry composed of few firms or many firms.
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Suppose Farmer Smith from Kansas and Farmer Jones from Missouri agree to restrict their combined output of wheat in an attempt to increase the price and profits. How likely do you think the Smith–Jones cartel is to succeed? Explain.
Would you expect the kinked demand curve to be more extreme (like a right angle) or less extreme (like a normal demand curve) if each firm in the cartel produces a near-identical product like OPEC and petroleum? What if each firm produces a somewhat different product?
If the market described in the accompanying diagram is dominated by a cartel, the loss in total surplus relative to perfectly competitive market conditions will be what?
Chapter 24 Solutions
Economics (MindTap Course List)
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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.arrow_forwardOPEC 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?arrow_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_forward
- 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?arrow_forwardWhy has the Federation of Quebec Maple Syrup Producers been a successful cartel in Quebec, Canada? Has the relatively weak government structure of Quebec allowed for this organizations success?arrow_forwardWould you expect the kinked demand curve to be more extreme (like a right angle) or less extreme (like a normal demand curve) if each firm in the cartel produces a near-identical product like petroleum? What if each firm produces a somewhat different product? Explain.arrow_forward
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