1st question

9. Antitrust laws Cooperation among oligopolies runs counter to the public interest because it leads to underproduction and high prices. In an effort to bring resource allocation closer to the social optimum, public officials attempt to force oligopolies to compete instead of cooperating. Consider the following scenario: Suppose that the owners of several major mining companies secretly meet and agree to restrict indium supply in order to boost prices. As a result of the higher price of indium, a smartphone manufacturer loses billions of dollars. This mobile company could recover three times the damages it has sustained by suing the appropriate mining companies under which of the following laws? O The Sherman Antitrust Act of 1890 O' The Robinson-Patman Act of 1936 O The Clayton Act of 1914 O The Celler-Kefauver Act of 19503. Breakdown of a cartel agreement Consider a town in which only two residents, Khalid and Sabrina, own wells that produce water safe for drinking, Khalid and serve can point and set as much water as they want at no cost. For them, total revenue equals profit. The following table shows the town's dethand schedule for water. Price Quantity Demanded Total Revenue (Dollars per gallon) (Gallons of water) (Dollars) 6.00 0 0 5.50 35 $192.50 5.00 70 $350.00 4.50 105 $472.50 4.00 140 $560.00 3.50 175 $612.50 3.00 210 $630.00 2.50 245 $612.50 2.00 280 $560.00 1.50 315 $472.50 1.00 350 $350.00 0.50 385 $192.50 0 420 0Suppose Khalid and Sabrina form a cartel and behave as a monopolist. The profit-maximizing price is $ per gallon, and the total output is gallons. As part of their cartel agreement, Khalid and Sabrina agree to split production equally. Therefore, Khalid's profit is $ and Sabrina's profit is $ Suppose that Khalid and Sabrina have been successfully operating as a cartel. They each charge the monopoly price and sell half of the monopoly quantity. Then one night before going to sleep, Khalid says to himself, "Sabrina and I aren't the best of friends anyway. If I increase my production to 35 gallons more than the cartel amount, I can increase my profit even though her profit goes down. I will do that starting tomorrow." After Khalid implements his new plan, the price of water to per gallon. Given Sabrina and Khalid's production levels, Khalid's profit becomes |s and Sabrina's profit becomes | S Because Khalid has deviated from the cartel agreement and increased his output of water to 35 gallons more than the cartel amount, Sabrina decides that she will also increase her production to 35 gallons more than the cartel amount. After Sabrina increases her production, Khalid's profit becomes |$ Sabrina's profit becomes |$ and total profit (the sum of the profits of Khalid and Sabrina) is now |$ True or False: Based on the fact that both Khalid and Sabrina increased production from the initial cartel quantity, you know that the output effect was larger than the price effect at that quantity. O True O False Note that Khalid and Sabrina started by behaving cooperatively. However, once Khalid decided to cheat, Sabrina decided to cheat as well. In other words, Sabrina's output decisions are based on Khalid's actions. This behavior is an example of