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Economic structure and possible future actions of OPEC

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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, 2004).

Explain the difference between a monopoly and an oligopoly,and a cartel.
Provide an example of a monopoly, an oligopoly, and a cartel.
Discuss the welfare effects of monopolies and oligopolies.
Explain the game theory.
Using your own words, discuss the economic purpose of OPEC. What has happened to oil prices over the past five years?
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 in 2 to 4 pages.

Reference

Perloff, J. M. (2004). Microeconomics (3rd ed.). New York: Pearson Addison Wesley.

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Solution Preview

While monopoly describes an industry dominated by one firm, oligopoly describes an industry dominated by several large firms. An oligopoly's demand curve is kinked, representing the fact that if a single firm lowers its price, the other firms in the industry will move to match it, but if one firm raises its price, the others may not necessarily follow. The gap in the MR curve results from the sudden change in the slope of the demand curve at the going price. Firms will not change their price because they fear that if they do their total revenue and profits will fall, which results in the kinked-demand curve. Shortcomings of the model are that it ignores where the prevailing price first developed and it does not account for price leadership or other types of collusion. A cartel occurs when firms in an oligopoly collude to lower production in order to increase prices. In this way they function as a single large firm, making profits in the same way a monopoly would. ...

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