Module 7 HIGH ENGAGEMENT – Team Assignment 4
Group E12-Yifan Qu
Yushu Feng
Ken O’Sullivan
In the early years of the 1970s, the young organization OPEC recognized its dominant (at the time)
position in the supply of oil. It was determined to move the price of oil to some level higher than the
largely competitive level it had been at for years. Economists know that a cartel such as OPEC must
solve three tasks to accomplish this: (1) decide on the group’s most desirable market price and quantity,
PF and QF; (2) determine a quota rule establishing each member’s agreed upon output, qiF, in this price
fixing scheme; and (3) construct a viable policing mechanism to solve the problem of cheating on the
arrangement.
a) Discuss Task #2 above. Your answer should indicate why this is important to the success of
any cartel as well as why this is a difficult rule to devise.
The second task is to determine a quota rule establishing each member agreed upon output,
qiF, in this price fixing scheme. Moreover, this task would be to agree on cutting back output
or quantity Qf that would generate the increased optimal price Pf. Quota mechanism means
who gets to produce how much. This task requires lots of negotiation to come to a consensus,
because it will affect different producers or suppliers differently. They finally come up with
the a solution where they found some quota that was the optimal amount for each of the
