Suppose an Oil Cartel Has an Agreement to Restrict Members

question 84

Multiple Choice

Suppose an oil cartel has an agreement to restrict members' production in order to maintain a price of $30 per barrel. A single cartel member may want to cheat and exceed its quota so that it can:

• A) reduce its costs.
• B) charge higher prices.
• C) make demand more inelastic.
• D) earn a bigger profit.

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Definitions:

User Costs

The expense of using a good or service, including both the actual cost of obtaining it and the opportunity cost of forgoing the next best alternative.

Nonrenewable Resource

A natural resource that cannot be replenished at the same rate it is consumed, such as fossil fuels, minerals, and certain metals.

Future Profits

Anticipated earnings or profits that a business expects to generate in the future based on current plans and projections.

Current Extraction

The process of removing natural resources from the environment for immediate use.