Scenario 17-1
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 production levels are less than the Nash equilibrium levels,what do both Irun and Urun have the individual incentive to do
A)decrease price
B)decrease production
C)increase production
D)increase price

Question

Quizplus · Accepted Answer

Both Irun and Urun have the individual incentive to increase production as long as it is less than the Nash equilibrium levels. This is because as they increase production, they can sell more oil and earn more profits. Decreasing production or decreasing price would only lead to a decrease in profits. Increasing price would lead to higher profits, but it would also incentivize the other country to increase production and capture some of those profits. Therefore, the best option for both countries is to increase production up to the Nash equilibrium levels to maximize their joint profits.

Scenario 17-1 Assume That the Countries of Irun and Urun Are the Are