The map below shows the sizes of the oil reserves held by the OPEC member nations (Selected are member nations: Algeria, Angola, Ecuador, Gabon, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, Venezuela) Press the play button in the lower left hand corner to see how these reserves change with time (watch Venezuela specifically): 1. Briefly explain the content of the article. 2. What is a cartel as explained in this article. 3. Is OPEC efficient as a cartel structure? Why? 4. What is the effect of OPEC on non-OPEC producers. Q2). A firm has the following short-run inverse demand and cost schedules for a particular product P = 45 – Q TC = 500 + 5 Q A). At what price should the firm sell its product? B). If this is a monopolistically competitive firm, what do you think would happen as the firm moves toward the long run? Solve for Q. (Remember in the Long Run P = AC) C) If this is a perfectly competitive firm, what is the price the firm would charge? (remember for perfect competitive P = MC). Q3). There are only two firms in a given industry. The total demand for their product is Q = 30 – 2 P The two firms have identical cost functions TC = 3 + 10 Q The two firms agree to collude and act as though the industry is a monopoly. At what price and quantity will this cartel maximize its profit. Q4). A company has estimated its demand function and total cost function to be as follows: Q = 25 – 0.05 P TC = 780 + 200 Q Answer the following questions by solving the equations: What will be the price and quantity if this company wants to: A). Maximize profits. B). Maximize revenue (i.e., MR =0). Q5. You are a theater owner fortunate to book a summer box office hit into your single theater. You are now planning the length of its run. Your share of the film’s projected box office is R = 10 W -0.25 (W)^2, where R is in thousands of dollars and W is the number of weeks that the movie runs. The average operating cost of your theater is AC =MC = $5 thousand per week. a. To maximize your profit, how many weeks should the movie run? What is your profit? b. You realize that your typical movie makes an average operating profit of $1.5 thousand per week. How does this fact affect your decision in part a above if at all?
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