Use the following to answer questions: Table: Market for Oil
Suppose that oil is produced by 10 countries, each of which produces 10 million barrels of oil a day (MBD) for a total 100 MBD. The world price of oil at this quantity is $36 per barrel so each country earns $360 million a day. $$\begin{array} { | c | c | }
\hline \text { World Price (per barrel) } & \text { World Quantity (MBD) } \
\hline \$ 36 & 100 \
\hline 37.50 & 98 \
\hline 47.50 & 82 \
\hline 50 & 80 \
\hline
\end{array}$$
-(Table: Market for Oil) Refer to the table. Suppose that these countries form a cartel and each country produces 8 MBD. If one of the cartel members cheats by secretly pushing its production back to 10 MBD rather than 8, total revenue for the cheating country would:
A) increase from $360 million to $500 million a day.
B) increase from $400 million to $475 million a day.
C) decrease from $380 million to $360 million a day.
D) remain unchanged at $400 million a day.

Question

Use the following to answer questions: Table: Market for Oil
Suppose that oil is produced by 10 countries, each of which produces 10 million barrels of oil a day (MBD) for a total 100 MBD. The world price of oil at this quantity is $36 per barrel so each country earns $360 million a day. $$\begin{array} { | c | c | } 
\hline \text { World Price (per barrel) } & \text { World Quantity (MBD) } \
\hline \$ 36 & 100 \
\hline 37.50 & 98 \
\hline 47.50 & 82 \
\hline 50 & 80 \
\hline
\end{array}$$
-(Table: Market for Oil) Refer to the table. Suppose that these countries form a cartel and each country produces 8 MBD. If one of the cartel members cheats by secretly pushing its production back to 10 MBD rather than 8, total revenue for the cheating country would:
A) increase from $360 million to $500 million a day.
B) increase from $400 million to $475 million a day.
C) decrease from $380 million to $360 million a day.
D) remain unchanged at $400 million a day.

Quizplus · Accepted Answer

If the cartel reduces production to 80 MBD, the price rises to $50 per barrel. Each country earns $400 million (8 MBD x $50). If one cheats and produces 10 MBD, the total production becomes 82 MBD, and the price drops to $47.50. The cheating country earns $475 million (10 MBD x $47.50).

Use the Following to Answer Questions: Table: Market for Oil