Economics:Need in 24 hours

Apr 26th, 2015
FratBro23
Category:
Economics
Price: $75 USD

Question description

Consider the global market for crude oil, consisting of Saudi Arabia, Iran, and the rest of the world.  Suppose that price-taking consumers in the rest of the world have demand for crude oil given by:

.P = 2500 - 1.5Q

  Assume that price-taking fringe suppliers of crude oil in the rest of the world have marginal costs given by:

.p = 2000+0.4Q

  Suppose that Saudi Arabia has marginal costs given by:

,p = 50+0.1Q

And that Iran has marginal costs given by:

.p = 100+0.2Q

  Assume that neither Iran nor Saudi Arabia has demand of their own

Suppose that Saudi Arabia and Iran are contemplating forming a Cournot duopoly cartel.  (Hint: assume residual demand reflects case 3).

a.  What is the optimal amount of crude oil that Saudi Arabia, Iran, and the rest of the world produces?

b.  What is the equilibrium price of crude oil in the market?

c.  What is the mark-up charged by Saudi Arabia and Iran?

d.  What are the profits to Saudi Arabia and Iran? 

e.  What is the share of Saudi Arabia’s production to total duopoly production?

f.  How does the Cournot mark-ups compare to the full enforcement (multi-plant monopoly consisting of Saudi Arabia and Iran) mark-ups?

Now suppose instead that rest of world fringe supply is given by: Suppose that Saudi Arabia and Iran are again contemplating forming a Cournot duopoly cartel.  (Hint: assume residual demand reflects case 1).

g.  What is the optimal amount of crude oil that Saudi Arabia, Iran, and the rest of the world produces?

h.  What is the equilibrium price of crude oil in the market?

i.  What is the mark-up charged by Saudi Arabia and Iran?

j.  What are the profits to Saudi Arabia and Iran? 

k.  What is the share of Saudi Arabia’s production to total duopoly production?

l.  How does the Cournot mark-ups compare to the full enforcement (multi-plant monopoly consisting of Saudi Arabia and Iran) mark-ups?

Compare your results for these two cases.  What insights might this question have for the OPEC strategy game

Tutor Answer

(Top Tutor) Daniel C.
(997)
School: New York University
PREMIUM TUTOR

Studypool has helped 1,244,100 students

8 Reviews


Summary
Quality
Communication
On Time
Value
ddg82
Dec 8th, 2016
" Thanks, good work "
tinytim47
Nov 24th, 2016
" Wow this is really good.... didn't expect it. Sweet!!!! "
kenmwao2
Nov 24th, 2016
" Solid work, thanks. "
jestin7
Nov 15th, 2016
" This tutor is great! "
lilmoe415
Nov 2nd, 2016
" Thank you, Thank you, for top quality work, this is your guy!! "
dontuwannaknow
Oct 10th, 2016
" Excellent work as always thanks so much "
thargrow
Oct 1st, 2016
" Very Satisfied. "
SjSurvivor143
Sep 27th, 2016
" Thanks for the help. "
Ask your homework questions. Receive quality answers!

Type your question here (or upload an image)

1823 tutors are online

Brown University





1271 Tutors

California Institute of Technology




2131 Tutors

Carnegie Mellon University




982 Tutors

Columbia University





1256 Tutors

Dartmouth University





2113 Tutors

Emory University





2279 Tutors

Harvard University





599 Tutors

Massachusetts Institute of Technology



2319 Tutors

New York University





1645 Tutors

Notre Dam University





1911 Tutors

Oklahoma University





2122 Tutors

Pennsylvania State University





932 Tutors

Princeton University





1211 Tutors

Stanford University





983 Tutors

University of California





1282 Tutors

Oxford University





123 Tutors

Yale University





2325 Tutors