Mexico and OPEC Both Produce Crude Oil

question 52

Multiple Choice

Mexico and OPEC both produce crude oil.Realizing that it would be in their best interest to form an agreement on production goals,a meeting is arranged and an informal,verbal agreement is reached.If both Mexico and OPEC stick to the agreement,OPEC will earn profit of $200 million and Mexico will earn profit of $100 million.If both Mexico and OPEC cheat,then OPEC will earn $175 million and Mexico will earn $80 million.If only OPEC cheats,then OPEC earns $185 million and Mexico $60 million.If only Mexico cheats,then Mexico earns $110 million and OPEC $150 million.
-The distinguishing feature of a cartel is

• A) two firms are involved.
• B) firms agree to restrict output to earn higher profit.
• C) inelastic consumer demand.
• D) a formal,written document.
• E) firms agree to restrict membership in the cartel.

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Definitions:

Contribute

To give or supply in common with others; providing a portion towards a common end, such as in a project or a pool of resources.

Benefit

An advantage or profit gained from something.

Long-Run Equilibrium

A state in which all aspects of the market, including supply and demand, are balanced over a sustained period.

Club Meeting

A gathering of members belonging to a specific club aimed at discussing agendas, activities, or other topics of mutual interest.