An oil cartel, OPEC, controls much of the supply and prices of oil production in the world.
Question:
An oil cartel, OPEC, controls much of the supply and prices of oil production in the world. Oil is supplied according to the following equation: P = 3Q (P in dollars, Q in billions of barrels) and it is demanded according to the following equation P = 360 – 12Q. Marginal revenue for OPEC follows this equation: P = 360 – 24Q. Utilize these mathematical expressions to answer the following questions.
a. Solve for an efficient market equilibrium and graphically illustrate this solution.
(3 points)
b. Solve for the actual market outcome given that the cartel acts as a monopolist and
illustrate this solution graphically. (3 points)
c. What is the deadweight loss associated with this monopoly setting prices? (3
point)
d. Why does resource substitution occur later under a monopoly? (3 point)
e. Why might a cartel remain in place in spite of the fact that welfare is lost?
Managing Business Ethics Making Ethical Decisions
ISBN: 9781506388595
1st Edition
Authors: Alfred A. Marcus, Timothy J. Hargrave