The Organization of Petroleum Exporting Countries (OPEC) is an international cartel. If the cartel were to hire a consulting firm to monitor the production rates of member countries, the economic reason for this monitoring would be to
A) make sure that each member country is producing at an output level at which price equals marginal cost.
B) make sure all the member countries produce at least their quotas so that there will be no oil shortage.
C) detect those member countries that are depressing prices by producing more than their assigned quotas.
D) make sure that the marginal revenue for the last barrel of oil sold by each member country is less than its price.

Question

Quizplus · Accepted Answer

The monitoring of production rates by a consulting firm hired by OPEC is to detect and prevent member countries from producing more than their assigned quotas, which would lead to a surplus of oil supply and consequent price depression. Monitoring is necessary to ensure compliance with production quotas and stabilizing oil prices. Option A is not relevant since OPEC does not necessarily aim to have production at a level where price equals marginal cost. Option B is incorrect since OPEC aims to regulate supply and demand, not ensure a minimum level of production. Option D is also incorrect since OPEC aims to maximize revenue, not limit it by making sure the marginal revenue for the last barrel sold is less than its price.

The Organization of Petroleum Exporting Countries (OPEC) Is an International