Scenario 17-1. ​

question 48

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. 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.

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Definitions:

Present Value

The value today of a sum of money or series of payments expected in the future, adjusted for a certain rate of return.

Interest Rate

The cost of borrowing money or the return on investment, expressed as a percentage of the amount borrowed or invested.

Usury Law

A law that establishes the highest interest rates that lenders can apply to borrowed money.

Loaned Out

Refers to resources or money that has been borrowed out to individuals or entities under an agreement to be repaid, typically with interest, over a certain period.