What is the effect on the cartels profit maximizing price

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Reference no: EM131212661

Consider given figure, which shows what a cartel can do if it can act as a monopolist. In Figure, the cartel supplies the entire world market.

a. What is the effect on the cartel's profit-maximizing price if a new outside source of supply now develops that can provide 10 million barrels of oil per day at any price above $5 per barrel? Show the effect using the graph.

b. Instead of the new outside source described in question a , consider instead a new outside source of supply that will provide amounts of oil that vary with the world price, according to the following schedule:

Outside supply (millions of barrels per day) 5 (World price 2 5)/2 (For instance, if the world price is $15, the outside supply is 5 million barrels per day.)

Show graphically and explain the effect on the cartel's profit-maximizing price of this new outside supply source.

Reference no: EM131212661

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