Use the Following to Answer Questions: Table: Market for Oil

question 176

Multiple Choice

Use the following to answer questions: Table: Market for Oil
Suppose that oil is produced by 10 countries, each of which produces 10 million barrels of oil a day (MBD) for a total 100 MBD. The world price of oil at this quantity is $36 per barrel so each country earns $360 million a day. $$\begin{array} { | c | c | } \hline \text { World Price (per barrel) } & \text { World Quantity (MBD) } \\\hline \$ 36 & 100 \\\hline 37.50 & 98 \\\hline 47.50 & 82 \\\hline 50 & 80 \\\hline\end{array}$$
-(Table: Market for Oil) Refer to the table. Suppose that these countries form a cartel and each country produces 8 MBD. If nine of the cartel members cheat and produce 10 MBD while one country keeps its promise and maintains production at 8 MBD, each cheater would earn revenue of:

• A) $375 million a day, while the noncheating country would earn $300 million a day.
• B) $375 million a day, while the noncheating country would earn $360 million a day.
• C) $400 million a day, while the noncheating country would earn $300 million a day.
• D) $400 million a day, while the noncheating country would earn $360 million a day.

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Definitions:

Game Theory

Analyzes the choices made by rival firms, people, and even governments when they are trying to maximize their own well-being while anticipating and reacting to the actions of others in their environment.

Oligopolistic Industries

Industries dominated by a small number of firms, leading to competitive conditions that fall between a monopoly and perfect competition.

Industrial Concentration

A measure of the extent to which production in an industry is dominated by a few large firms.

Technological Advance

The introduction of new technologies or the improvement of existing technologies, enhancing productivity and possibly leading to economic growth.