(Table: Market for Oil) Refer to the table. Suppose that thesecountries form a cartel and each country produces 8 MBD. Ifone of the cartel members cheats by secretly pushing itsproduction back to 10 MBD rather than 8, total revenue forthe cheating country would:

Question

Quizplus · Accepted Answer

The cartel is currently producing a total of 32 MBD and selling it at a price of $40 per barrel, resulting in a total revenue of $1.28 billion per day ($40 x 32). If one of the countries cheats and produces 10 MBD instead of 8 MBD, total production will increase to 34 MBD. At this higher level of production, the price of oil will decrease to $37.50 per barrel, resulting in a total revenue for the cheating country of $475 million per day ($37.50 x 10). This is higher than the current revenue of $400 million per day, making option B the correct answer.

(Table: Market for Oil) Refer to the Table