. Q1.When OPEC raised the price of oil dramatically in the mid-1970s, experts said it was unlikely that the cartel could stay together over the long termthat the incentives for individual members to cheat would become too strong. More than forty years later, OPEC still exists. Why do you think OPEC has been able to beat the odds and continue to collude?

Q2.Mary and Raj are the only two growers who provide organically grown corn to a local grocery store. They know that if they cooperated and produced less corn, they could raise the price of the corn. If they work independently, they will each earn $100. If they decide to work together and both lower their output, they can each earn $150. If one person lowers output and the other does not, the person who lowers output will earn $0 and the other person will capture the entire market and will earn $200.

Now you are required to answer the below questions

a.Find out the payoff matrix between Raj and Mary?(A = Work independently; B =

Cooperate and Lower Output.)

b.What is the best choice for Raj if he is sure that Mary will cooperate?

c.If Mary thinks Raj will cheat, what should Mary do and why?

d.What is the prisoner's dilemma result?

e.What is the preferred choice if they could ensure cooperation?

f.Identify the Nash equilibrium of the game, if it exists.

Q3.. Evaluate the following statements whether they are true or false. Justify your answer with an

appropriate reason. (Draw a graph if it is necessary).

a)The long run equilibrium condition for the competitive firm is P = LRAC = MR = MC.

b)If the total cost function is given by TC = 10,000 +10Q +85 Q², the associated total fixed cost and total variable functions are given by: TFC = 10,000 and TVC =10Q +85 Q² respectively.

c)A monopolistically competitive firm cannot successfully maintain positive economic profits in the long-run

d)Under kinked demand theory the prices of oligopolists are predicted to be rather rigid or 'sticky'.

e)A firm not having the ability to influence the price of its goods and services and having to accept the equilibrium price in the market of that good is a price taker.

f)For a monopoly producing a certain amount of output, price is less than marginal revenue.

Q4.. Explain the conditions that are met when a consumer has found the best affordable combination of goods to buy. (Use the terms Budget line, Marginal Rate of Substitution and Relative Price in your

Explanation) Also graphically illustrate the best affordable combination.