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monopoly, an oligopoly and a cartel

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You have been contracted by an economic consulting firm to determine the economic structure and possible future actions of OPEC, the Organization of Petroleum Exporting Countries.

Using the Library, the Internet, and your course materials, find websites that offer this information and answer the following questions (Perloff, 2007).

1. Explain the difference between a monopoly and an oligopoly, and a cartel.
2. Provide an example of a monopoly, an oligopoly, and a cartel.
3. Discuss the welfare effects of monopolies and oligopolies.
4. How does game theory explain the interactions of firms within oligopolies and cartels?
5. Using your own words, discuss the economic purpose of OPEC. What has happened to oil prices over the past five years?
6. Based on your answers to the above questions, synthesize the information you have gathered and tell the economic consulting firm which actions you think OPEC will take over the next year.

Summarize your research findings.

Reference

Perloff, J. M. (2007). Microeconomics (4th ed.). New York: Pearson Addison Wesley.

Instructor Comments: Most people do well defining and explaining each of the market types, their differences and giving examples. Where many papers need more work is in describing welfare effects, and applying game theory to the behavior of firms in Cartels. Welfare effects are measure using consumer surplus and producer surplus.

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Solution Preview

The response addresses the queries posted in 1273 words with references.

// The market in which firm exists can be determined as monopoly, oligopoly and cartel. In order to have a clear vision about the difference in these market structure this paper will help in understanding them, with suitable examples. OPEC a form of cartel, with its economic structure has also been covered in this paper. //

Monopoly can be referred as the market condition with the single seller of the goods and services. The monopolistic company has complete control over the market conditions and industry. The production of such product is carried out by this firm with no close substitute of that product in the same industry. Example of monopoly can be post office, water or electricity board, and pharmaceutical company (Perloff, 2007).

Oligopoly refers to the few sellers with each individual unit affecting the market price. The minimum of two and maximum of 10-15 firms are operating in such industry. Example of Oligopoly can be oil, car or airline industry where if single firm decide to have low fares can involve the prices of the other firms in the same industry (Perloff, 2007)

Cartel is a form of oligopolistic market where there are few firms acting themselves as monopolists and they are engaged in the production of homogeneous product and services. It also refers to the trust that regulates the price and production decision in particular areas of the same business units. In this form of market the firms are not competing with each other, but they join their efforts to set the prices in order to earn profits and predetermined goals. If the firms are interested in competing then they get competitive advantage over others with the price reduction techniques. For example, OPEC the Organization of Petroleum Exporting Countries can be considered as cartel (Taylor & Weerapana, 2007).

//Till now, the difference between the market with appropriate examples have been provided and now, Welfare effects of Monopolization and oligopoly has been explained.//

Under the monopolistic market conditions, the ...

Solution Summary

The response addresses the queries posted in 1273 words with references.

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