CHAPTER 12 • Monopolistic Competition and Oligopoly 479 TD Price Sc F IGURE 12.10 THE OPEC OIL CARTEL P* DOPEC MC OPEC Pc′ TD is the total world demand curve for oil, and Sc is the competitive (non-OPEC) supply curve OPEC’s demand DOPEC is the difference between the two Because both total demand and competitive supply are inelastic, OPEC’s demand is inelastic OPEC’s profit-maximizing quantity QOPEC is found at the intersection of its marginal revenue and marginal cost curves; at this quantity, OPEC charges price P* If OPEC producers had not cartelized, price would be Pc, where OPEC’s demand and marginal cost curves intersect MR OPEC Qc QOPEC QT Quantity demand curve intersects its marginal cost curve That price, labeled Pc, is much lower than the cartel price P* Because both total demand and non-OPEC supply are inelastic, the demand for OPEC oil is also fairly inelastic Thus the cartel has substantial monopoly power, and it has used that power to drive prices well above competitive levels In Chapter 2, we stressed the importance of distinguishing between short-run and long-run supply and demand That distinction is important here The total demand and non-OPEC supply curves in Figure 12.10 apply to a short- or intermediate-run analysis In the long run, both demand and supply will be much more elastic, which means that OPEC’s demand curve will also be much more elastic We would thus expect that in the long run OPEC would be unable to maintain a price that is so much above the competitive level Indeed, during 1982–1989, oil prices fell in real terms, largely because of the long-run adjustment of demand and non-OPEC supply ANALYZING CIPEC Figure 12.11 provides a similar analysis of CIPEC, which consists of four copper-producing countries: Chile, Peru, Zambia, and Congo (formerly Zaire), that collectively account for less than half of world copper production In these countries, production costs are lower than those of non-CIPEC producers, but except for Chile, not much lower In Figure 12.11, CIPEC’s marginal cost curve is therefore drawn only a little below the non-CIPEC supply curve CIPEC’s demand curve DCIPEC is the difference between total demand TD and non-CIPEC supply Sc CIPEC’s marginal cost and marginal revenue curves intersect at quantity QCIPEC, with the corresponding price P* Again, the competitive price Pc is found at the point where CIPEC’s demand curve intersects its marginal cost curve Note that this price is very close to the cartel price P* Why can’t CIPEC increase copper prices much? As Figure 12.11 shows, the total demand for copper is more elastic than that for oil (Other materials, such