Mexico and OPEC both produce crude oil.Realizing that it would be in their best interest to form an agreement on production goals,a meeting is arranged and an informal,verbal agreement is reached.If both Mexico and OPEC stick to the agreement,OPEC will earn profit of $200 million and Mexico will earn profit of $100 million.If both Mexico and OPEC cheat,then OPEC will earn $175 million and Mexico will earn $80 million.If only OPEC cheats,then OPEC earns $185 million and Mexico $60 million.If only Mexico cheats,then Mexico earns $110 million and OPEC $150 million.
-The basic source of instability in all cartel agreements stems from

Question

Mexico and OPEC both produce crude oil.Realizing that it would be in their best interest to form an agreement on production goals,a meeting is arranged and an informal,verbal agreement is reached.If both Mexico and OPEC stick to the agreement,OPEC will earn profit of $200 million and Mexico will earn profit of $100 million.If both Mexico and OPEC cheat,then OPEC will earn $175 million and Mexico will earn $80 million.If only OPEC cheats,then OPEC earns $185 million and Mexico $60 million.If only Mexico cheats,then Mexico earns $110 million and OPEC $150 million. 
-The basic source of instability in all cartel agreements stems from

Quizplus · Accepted Answer

The basic source of instability in all cartel agreements stems from the incentive for the members to cheat. Cartels rely on all members sticking to agreed-upon production levels in order to maintain high prices and profits. However, there is always an incentive for individual members to cheat and increase production in order to earn higher profits. This leads to a breakdown in the cartel agreement and instability in the market.

Mexico and OPEC Both Produce Crude Oil