The opioid epidemic causing a staggering number of deaths each year in the United States is largely caused by two drugs: heroin and fentanyl. Much of the heroin is supplied by several major organized Mexican cartels while the much stronger fentanyl is mostly produced in hundreds of labs (big and small) in China. The market structure for heroin can be considered as an oligopoly that operates as a monopoly. On the other hand, the fentanyl industry is less organized in terms of cartel organization and therefore more competitive. How do the differences in the organization of both industries explain why deaths from fentanyl have skyrocketed in recent years? The organized heroin cartel   A.does not have barriers to market entry. The more competitive fentanyl industry has substantial barriers to entry, making fentanyl a more available drug.   B.has the ability to control quantity and raise the prices. The more competitive fentanyl industry makes more of the drug available at a lower…

Imagine there are two companies, East Wafer and West Wafer, which produce silicon wafers, the base component in the microchips which constitute the brains of our computers. Below is the daily demand for silicon wafers Suppose, for simplicity, East Wafer and West Wafer have the same constant cost structure, so maximizing total revenue maximizes profit. If East Wafer and West Wafer are able to form a cartel and collude without cheating on each other, what will be the price of a silicon wafer?     $40     $50     $60     $70

Consider a hypothetical demand schedule for monosodium Quantity of MSG demanded (millions of pounds) Price of MSG glutamate (MSG). Suppose that Ajinomoto holds 50% of ($ per pound) the market, Jiali holds 30% of the market, and Quingdao $8 holds 20% of the market. $7 20 Suppose the three firms agree to form a cartel to fix $6 30 production of monosodium glutamate. Assume marginal cost equals zero, and the output is split equally across $5 40 $4 60 the firms, $3 90 $2 110 What quantity maximizes the cartel's profit? $1 180 SO 300 110 million pounds 90 million pounds 300 million pounds 20 million pounds Suppose Ajinomoto's marginal cost remains equal to zero, but for Jiali and Quingdao, marginal costs rise above zero. How would this affect the incentive of Ajinimoto to act noncooperatively and change its output? Ajinomoto will have an incentive to increase its output of MSG. Ajinomoto will not have an incentive to change its output. Ajinomoto will have an incentive to decrease its output…

Consider the curve shown in the figure below, which shows the market demand, marginal cost, and marginal revenue curve for firms in an oligopolistic industry. (MC curve is horizontal because it is assumed that the fixed costs are 0 for all firms and the AVC is constant, so ATC=AVC=MC.) Suppose the firms collude to form a cartel. What price will the cartel charge? What quantity will the cartel supply? How much profit will the cartel earn? Suppose now that the cartel breaks up and the oligopolistic firms compete as vigorously as possible by cutting the price and increasing sales. What will the industry quantity and price be? What will the collective profits be of all firms in the industry? Compare the equilibrium price, quantity, and profit for the cartel and cutthroat competition outcomes.

How would cartel decide optimal pricing and output

Consider a duopolistic market with an inverse demand curve  P(Q) = 460 − 4Qand constant marginal costs for each firm that are given by  MC(Q) = 10.Assume fixed costs are negligible. The two identical firms are competing in this market by choosing their production quantities simultaneously. In the​ equilibrium, each firm produces 37.5 units and the prevailing market price is 160.   How would the joint profits of these two firms change if they successfully formed a​ cartel?   Change in joint​ profits: ?  ​(Enter your answer rounded to two decimal​ places; include a negative sign if ​appropriate.)

One 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?

Seagate and Western Digital (WD) run a cartel producing identical 1 TB hard drives. The demand for hard drives is Q = 17 – P. They both have MC = 2 and no fixed cost so ATC = 2. This is a lot like the Coke-Pepsi game in the duopoly quantity_game video. You can verify that together the firms maximize their (combined) profit by each making 3.75 hard drives. What profit does Seagate make with this cartel agreement? $

Consider an oligopoly in which firms choose quantities. The inverse market demand curve is given by P = a - b (9₁ +92), where 9₁ is the quantity produced by Firm 1, and 92 is the quantity produced by Firm 2. Each firm has a marginal cost equal to c. 1. What is the equilibrium market quantity if the two firms acted as a cartel (i.e., attempt to set prices and outputs together to maximize total industry profits). How about the equilibrium market price? 2. Instead of cartel, suppose now firm 1 acts as the leader and firm 2 acts as the follower. What is the Stackelberg equilibrium quantities determined by each firm? What is the equilibrium market price? π2 3. Find using the Stackelberg quantities and price. Whose profit is higher?