Scenario 17-1. ​

question 37

Multiple Choice

Scenario 17-1.
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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. If Irun fails to live up to the production agreement and overproduces, which of the following statements will be true of Urun's condition?

• A)Urun will invariably be worse off than before the agreement was broken.
• B)Urun will counter by decreasing its production in order to maintain price stability.
• C)Urun's profit will be maximized by holding its production constant.
• D)Urun's profit will be unaffected by Irun's actions.

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Definitions:

Quantity Effect

The change in quantity demanded or supplied as a result of changes in price.

Price Effect

The impact that a change in the price of a good or service has on its demand or supply.

Total Revenue

The total income generated by the sale of goods or services, calculated as the product of the price per unit and the number of units sold.

Price Elasticity

A measure of how much the quantity demanded of a good changes in response to a change in price.