Scenario 17-1. ​

question 48

Multiple Choice

Scenario 17-1.
​
Assume that the countries of Irun and Urun are the only two producers of crude oil. Further assume that both countries have entered into an agreement to maintain certain production levels in order to maximize profits. In the world market for oil, the demand curve is downward sloping.
-Refer to Scenario 17-1. As long as the combined level of output is less than the Nash equilibrium level, both Irun and Urun have the individual incentive to

• A)hold production constant.
• B)decrease production.
• C)increase production.
• D)increase price.

---

Definitions:

Business Risk

The possibility of experiencing financial loss or failure inherent in operating a business.

Market System

A market system is an economic system in which decisions regarding investment, production, and distribution are based on supply and demand.

Circular Flow Model

An economic model that depicts how money and products move through an economy, showing the interactions between households and businesses.

Resource Markets

Markets where productive resources (like labor, capital, and raw materials) are bought and sold.