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PSLecture16 - Problem Set for Lecture 16 OPEC A Successful...

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Problem Set for Lecture 16: OPEC: A Successful Cartel? [February 2, 2010] Note: Those problems identified with a T are definitely considered for review in the tutorials. *16.1 “Shawn is very upset. Shawn understands that the Anti-Combines Act in Canada would not allow rival producers in an industry to meet and jointly discuss industry strategy. However, Shawn has read that OPEC members meet on a regularly scheduled basis and can jointly agree to adjust their petroleum production levels in order to support a specific price of petroleum in the cartel. Shawn takes the position that the members of OPEC should not be allowed to meet and establish their optimal pricing strategies in a joint, collusive manner.” T*16.2 “Sharon has been reviewing the model of cartels in the short run. Sharon is confused about the model. Sharon asks how does the cartel establish a quasi-industry supply curve?” T*16.3 “Sweeney gasps. Sweeney presents the position that if a cartel acts like a pure monopolist, then the cartel can establish the optimal cartel price and also the optimal total cartel output independently of each other.” T*16.4 “Scott is examining the profit levels for cartel members between their competitive solution [i.e., the pre-cartel competitive solution which is found in the cartel diagram at the intersection between AR and MC] and their cartel solution. Scott just does not understand why a cartel member’s profits would be significantly higher than for the competitive solution. Further, Scott does not understand that this finding would be strengthened the more inelastic the demand curve facing the cartel.” T*16.5 “Sandra does not understand the method through which a quantity setting cartel would assign the specific production quotas to each of its members.” T*16.6
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