Exploring Economics
8th Edition
ISBN: 9781544336329
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Chapter 15, Problem 3P
To determine
To explain:
The chances of success of S-J cartel if both farmers agree to limit their combined output of wheat for increasing the price and profits as well.
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Suppose Farmer Smith from Kansas and Farmer Jones from Missouri agree to restrict their combined output of wheat in an attempt to increase the price and profits. How likely do you think the Smith-Jones cartel is to suceed? Explain.
consider the market for oil. Suppose for simplicity that there are only two oil
roducing countries-Saudi Arabia and Kuwait. Both countries must choose
hether to produce a low output or a high output.
These output strategies with corresponding profits are depicted in the
ayoff matrix to the right. Kuwait's profits are in red and Saudi Arabia's are in blue.
Kuwait
Suppose the two countries form a cartel. What is the cooperative equilibrium?
Low Output
High Output
O A. The cooperative equilibrium is for Saudi Arabia to produce a high output
and Kuwait to produce a high output.
$125
$75
Low Output
$8
$13
O B. A cooperative equilibrium does not exist for this game.
O C. The cooperative equilibrium is for Saudi Arabia to produce a low output
and Kuwait to produce a high output.
Saudi Arabia
$98
$70
O D. The cooperative equilibrium is for Saudi Arabia to produce a high output
and Kuwait to produce a low output.
High Output
$5
$8
O E. The cooperative equilibrium is for Saudi Arabia to produce…
Suppose Farmer Smith from Kansas and Farmer Jones from Missouri agree to restrict their combined output of wheat in an attempt to increase the price and profits. How likely do you think the Smith–Jones cartel is to succeed? Explain.
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