Answer to Question #274605 in Economics for pau

Question

suppose that the demand curve facing opec is given by p= 120-2q and that each member's cost of producing oil is ac=mc= $20. find the cartels profit maximizing total output and price. If instead of keeping to this output, all members overproduced their quotas by 20 percent,what would be the effect on OPECS total profit

Answer 1

The cartels profit maximizing total output and price are:

MR = MC,

$MR = TR'(q) = 120 - 4q,$

120 - 4q = 20,

q = 25 units,

$P = 120 - 2×25 = 70.$

If instead of keeping to this output, all members overproduced their quotas by 20 percent, then the OPECS total profit will decrease.