After the War of the Rings, the surviving orcs of Moria, Mordor, Isengard, and the Misty Mountains formed a cartel controlling toxic waste disposal. Lands in the West had no alternative but to deal with the cartel in order to get rid of their toxic waste left over from Sauron. Presently two orcs came into view. One was clad in ragged brown and was armed with a bow of horn; it was of a small breed, black-skinned, with wide and snuffling nostrils: a tracker of some kind. The other was a big fighting orc, like those of Shagrat's company, bearing the token of the Eye. He had a bow at his back and carried a short broad-headed spear. As usual, they were quarreling. 

 

a) MordorRUs operates in an oligopoly industry. What are the 3 characteristics of this market structure? In addition, indicate if the structure is a price taker or price searcher. 

 

b) Draw the oligopoly toxic waste disposal market and the MordorRUs (one of the cartel) firm with collusion. Show the profits. At what point does MordorRUs produce? 

 

c) Does the collusion work? Explain why or why not. Identify all the dynamics and all the incentives operating on the firms in the cartel. 

 

d) Draw the oligopoly toxic waste disposal market and the MordorRUs (one of the cartel) firm when MordorRUs decides to cheat before anybody finds out. Show the profits. At what point does MordorRUs produce? 

 

e) Draw the oligopoly toxic waste disposal market and the MordorRUs firm after everybody finds out MordorRUs is cheating. Show MordorRUs profits. At what point does MordorRUs produce? 

 

f) Draw the possible kinked demand curve facing MordorRUs. At what point does MordorRUs produce? What happens to price and output if marginal costs change? What do the other oligopoly firms do when the firm tries to increase price? What do the other oligopoly firms do when the firm tries to decrease price?