Find the marginal revenue and the equilibrium price and production quantity under two scenarios.

Question 1:

Find the marginal revenue and the equilibrium price and production quantity under two scenarios.

ULO1

GLO1 and GLO 4,

(12 marks). Provides very limited or/and completely incorrect answers to questions on the marginal revenue function and the equilibrium price and production quantity under two scenarios.

(0-1.5 marks) Provides limited or/and generally incorrect answers to questions on the marginal revenue function and the equilibrium price and production quantity under two scenarios.

(1.6-2.9 marks) Provides partially correct answer to questions on the marginal revenue function and the equilibrium price and production quantity under two scenarios.

(3-5.9 marks) Provides generally good answer to questions on the marginal revenue function and the equilibrium price and production quantity under two scenarios.

(6.0-7.9 marks) Provides very good answer to questions on the marginal revenue function and the equilibrium price and production quantity under two scenarios.

(8-9.9 marks) Provides comprehensive and excellent answer to questions on the marginal revenue function and the equilibrium price and production quantity under two scenarios.

(10-12 marks)

Question 2: Compute the surplus of oil consumers, the surplus of OPEC oil producers and reduction in the

welfare of the society as a whole.

ULO1

GLO 1 and GLO 4,

(6 marks) Provides very limited or/and completely incorrect answers to the question on the computation of the surplus of the oil consumers, the surplus of oil producers and the society as a whole and the deadweight loss.

(0-0.9 mark) Provides limited or/and generally incorrect answers to the question on the computation of the surplus of the oil consumers, the surplus of oil producers and the society as a whole and the deadweight loss.

(1-1.9 marks) Provides partially correct answers to the question on the computation of the surplus of the oil consumers, the surplus of oil producers and the society as a whole and the deadweight loss.

(2-2.9marks) Provides generally good answers to the question on the computation of the surplus of the oil consumers, the surplus of oil producers and the society as a whole and the deadweight loss.

(3-3.9 marks) Provides very good answers to the question on the computation of the surplus of the oil consumers, the surplus of oil producers and the society as a whole and the deadweight loss.

(4-4.9 marks) Provides comprehensive and excellent answers to the question on the computation of the surplus of the oil consumers, the surplus of oil producers and the society as a whole and the deadweight loss.

(5-6 marks)

Question 3:

Identify the equilibrium price, oil production quantity, and profits of the representative OPEC member in the two scenarios as described in Question 1.

Illustrate why an OPEC member always has an incentive to cheat or not to respect his oil production quota.

ULO1

GLO 1 and GLO 4

(10 marks) Provides very limited or/and completely incorrect answers to questions on identifying the equilibrium price, quantity, and profits of OPEC members and showing why an OPEC member always has an incentive to cheat.

(0-0.9 mark) Provides limited or/and generally incorrect answers to questions on identifying the equilibrium price, quantity, and profits of OPEC members and showing why an OPEC member always has an incentive to cheat.

(1-2.9 marks) Provides partially correct answers to questions on identifying the equilibrium price, quantity, and profits of OPEC members and showing why an OPEC member always has an incentive to cheat.

(3-4.9marks) Provides generally good answers to questions on identifying the equilibrium price, quantity, and profits of OPEC members and showing why an OPEC member always has an incentive to cheat.

(5-6.9 marks) Provides very good answers to questions on identifying the equilibrium price, quantity, and profits of OPEC members and showing why an OPEC member always has an incentive to cheat.

(7-8.9 marks) Provides comprehensive and excellent answers to questions on identifying the equilibrium price, quantity, and profits of OPEC members and showing why an OPEC member always has an incentive to cheat.

(9-10 marks)

Question 4:

What is specifically

the pragmatism by Saudi Arabia that is mentioned by the article? Why do you think that it is smart, or it is not smart for Saudi Arabia to adopt this strategy?

UL01 ULO 3

GLO 1 and GLO 4

(12 marks) Provides completely unrelated or/and incorrect answers to question on the pragmatism by Saudi Arabia.

Lack of explanations based on economics concepts.

(0-1.5 marks) Provides generally unrelated or/and generally incorrect answers to question on the pragmatism by Saudi Arabia.

Provides unclear and confusing explanations based on economics concepts.

(1.6-2.9 marks) Provides partially correct answers to question on the pragmatism by Saudi Arabia.

Provides some explanations based on economics concepts.

(3-5.9 marks) Provides generally good answers to question on the pragmatism by Saudi Arabia.

Provides generally good explanations based on economics concepts.

(6.0-7.9 marks) Provides good answers to question on the pragmatism by Saudi Arabia.

Provides good explanations based on economics concepts.

(8-9.9 marks) Provides comprehensive and excellent answers to question on the pragmatism by Saudi Arabia.

Provides excellent explanations based on economics concepts.

(10-12 marks)

Economics for Managers

Assessment Task 1 Assignment 1 Individual Assignment

DUE DATE AND TIME: Friday, 2 September 2022, by 8:00pm (AEST)

WORD COUNT: 3,000 words (strict limit)

Description

The assignment provides you with an opportunity to conduct research on/analyse problems related to contemporary economics issues. You will need to apply the existing economic theories to develop a consistent argument with good reasoning while evaluating the given problem set critically.

Specific Requirements

Your assignment submission should start with a cover page in which all the following information should be provided: your full name, student ID and the total word count. Please note that the followings are excluded from the word count: cover page, footnotes, references, tables, figures and appendix (if any).

Following the cover page, please provide your answers to the four questions below. Note that all these questions are compulsory.

Referencing

This assignment should be well-referenced using the APA (7th Edition) referencing style.

Learning Outcomes

This task allows you to demonstrate achievement towards the unit learning outcomes. The ULOs are aligned with specific graduate learning outcomes that is, the skills and knowledge graduates are expected to have upon completion of their studies and this assessment task is an important tool in determining achievement of those outcomes.

If you do not demonstrate achievement of the unit learning outcomes, you will not be successful in this unit. It is good practice to familiarise yourself with the ULOs and GLOs as they provide guidance on the knowledge, understanding and skills youre expected to demonstrate upon completion of the unit. In this way they can be used to guide your study.

Unit Learning Outcomes (ULO) Graduate Learning Outcomes (GLO)

ULO 1: Interpret and apply basic principles and their effect on individual economic decisions (microeconomics), the economy as a whole GLO1: Discipline-specific knowledge and capabilities

GLO4: Critical thinking

(macroeconomics) and how economic indicators (data) are used to validate these economic behaviours. GLO8: Global citizenship

ULO 2: Apply economic principles to the analysis of important decisions confronting the management of business organisations. GLO4: Critical thinking

GLO5: Problem solving

ULO 3: Critically evaluate existing economic theories in the context of real and contemporary national and international circumstances. GLO4: Critical thinking

GLO8: Global citizenship

Question 1 [12 marks]

Assume for now that the Organization of Petroleum Exporting Countries (OPEC) consists of 10 exactly similar members and that they are the only oil producers in the world with the following worlds demand function and marginal cost function:

The marginal cost function (or the global oil supply function): MC=10+Q. Function of the worlds demand for oil: Q=100-P or equivalently P=100-Q where MC, P, Q denote marginal cost, price, and oil production quantity in million barrels/day, respectively.

Figure 1

Global Oil Market

7669525544500 P, MC

77216053975007772404699000 100 MC=10+Q

8243451472000

128778043180008382005016500

14795501136650081049112902000

10

6953257620100

0 Q2 Q1 100 Q (Million barrels/day)

MR D (Demand)

First, show that given the worlds demand for oil: Q=100-P or P=100-Q, the marginal revenue has the following function: MR=100-2Q.

Please identify the equilibrium price and oil production quantity under two following scenarios: Scenario 1: OPEC successfully coordinates the production of its members and behaves like a cartel. Scenario 2: OPEC members behave like individual sellers and each member by itself was so small relative to the overall market that it cannot affect the oil prices in the world market. Please compute the profits of OPEC members in Scenario 2.

Question 2 [6 marks]

Compute the surplus of oil consumers, the surplus of OPEC oil producers and reduction in the welfare of the society as a whole when OPEC members successfully coordinate their oil production to behave like a cartel.

Question 3 [10 marks]

Figure 2

A Representative OPEC Member

8017635544500 P, MC, AC

MC*=10+10Q

8243451472000

897763163678

AC

78371720177800146165520423900

800100289560 10

0 Q (Million barrels/day)

Figure 2 presents the marginal cost (MC*) and the average cost functions for a representative OPEC member. Note that Figure 2 is consistent with the graph of the global oil market in Figure 1.

Using Figure 2, please graphically identify the equilibrium price, oil production quantity, and profits of the representative OPEC member in the two scenarios as described in Question 1.

Use Figure 2 to illustrate why an OPEC member always has an incentive to cheat or not to respect his oil production quota.

Question 4 [12 marks]

Read Article 1 Could an OPEC deal mark the beginning of the end of cheap oil? at the end of this assignment (pages 7 and 8). Note that the questions below are about the real global oil market and real behaviour of OPEC and its members in this market.

Please answer the following questions:

What is specifically the pragmatism by Saudi Arabia that is mentioned by the article? Why do you think that it is smart, or it is not smart for Saudi Arabia to adopt this strategy of pragmatism toward other OPEC members or/and non-OPEC major oil producing countries in the context of global oil market as described in the article? Please be elaborate as much as possible in your answer.

End of the assignment questions

Marking and feedback

It is always a useful exercise to familiarise yourself with the criteria before completing any assessment task. Criteria act as a boundary around the task and help identify what assessors are looking for specifically in your submission. The criteria are drawn from the units learning outcomes ensuring they align with appropriate graduate attribute/s.

Identifying the standard you aim to achieve is also a useful strategy for success and to that end, familiarising yourself with the descriptor for that standard is highly recommended.

Article 1

By Viennese Waltz

The Economist. (Dec. 3, 2016)

Could an OPEC deal mark the beginning of the end of cheap oil?

EXACTLY two years after Saudi Arabia coaxed its fellow OPEC members into letting market forces set the oil price, it has performed a nifty half-pirouette. On November 30th it led members of the oil producers' cartel in a pledge to remove 1.2m barrels a day (b/d) from global oil production, if non-OPEC countries such as Russia chip in with a further 600,000 b/d. That would amount to almost 2% of global production, far more than markets expected. It showed that OPEC is not dead yet.

The size of the proposed cut, the first since 2008, caused a surge in Brent oil prices to above $50 a barrel. Some speculators think it may mark the beginning of the end of a two-year glut in the world's oil markets, during which prices have fallen by half and producers such as Venezuela have come close to collapse. As long as prices continue to recover, Saudi Arabia can probably shrug off the fact that its previous strategy damaged OPEC at least as badly as non-members, and that this week's deal gave more breathing space to its arch-rival Iran than it would have liked.

The rally's continuation, however, depends on non-OPEC members such as Russia reliably committing to cut output at a meeting on December 9th. It also hinges on the speed at which American shale producers step up production, and on Donald Trump's dream of oil self-reliance.

Since the end of September, when OPEC sketched out a deal in Algiers to cut production, Saudi Arabia's oil minister, Khalid al-Falih (pictured), and his Iranian counterpart, Bijan Zanganeh, had engaged in a game of brinkmanship that at times seemed likely to doom this meeting. Oil prices have staged frenetic swings since then (see chart). Days before the Vienna gathering, some analysts gave it a mere 30% chance of success. The betting was that failure would push prices well below $40 a barrel, and possibly bring about the collapse of OPEC.

But Saudi Arabia, OPEC's biggest producer, realised that pragmatism was its best option. Its promised 4.6% cut in production is mirrored by many other OPEC members, though Iran was permitted a token increase as it recovers from nuclear-related sanctions. That may be galling for Saudi Arabia, but it is likely to benefit far more than Iran from the rise in oil prices, if sustained, than it will lose from lopping 486,000 b/d off its total output. It promises to cut to 10.05m b/d, which is not far below its level in the first quarter of 2016.

Moreover, the government's plans to modernise the economy and partly privatise Saudi Aramco, the state oil company, depend to some extent on higher oil prices, says Bhushan Bahree of IHS Markit, a consultancy. Counter-intuitively, he says that the kingdom needs higher oil revenues as "a bridge" to becoming a less oil-dependent economy. OPEC argues that a modest cut now will spur investment in new sources of crude that will prevent harmful oil shortages in the future.

The cuts take effect from January 1st and will last for six months. During that time, traders will monitor oil-tanker traffic to ascertain whether fewer are leaving port. They cannot monitor Russia's pledge to cut 300,000 b/d of production, because much of its production moves by pipeline, says Abhishek Deshpande of Natixis, a bank. But he believes that even so the agreement will start to cut global oil inventories next year. Non-OPEC output has fallen this year, adding impetus to the cartel's efforts.

Some speculators were bullish even before the deal. Pierre Andurand of Andurand Capital, a hedge fund, says the OPEC agreement could push oil above $60 a barrel within weeks. He notes that speculators were mostly betting on an OPEC failure, and that big oil consumers may need swiftly to protect themselves against rising prices. Airlines, for example, could scramble to hedge against soaring fuel costs.

If oil prices continue to rise, American shale producers will ramp up output, in effect capping the oil price. This may not happen as swiftly as some think. After all, there are suspicions that, to coax Wall Street investment, shale producers have exaggerated their ability to produce low-cost oil. But many of them are still standing, despite OPEC's best efforts to kill them off. The cartel cannot declare even Pyrrhic victory from the past two years.

End of Article 1

The Economist.