The Organization of Petroleum Exporting Countries (OPEC)behaves in many ways like 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 is 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 is to detect those member countries that are producing more than their assigned quotas, which results in surplus supply and depresses prices. By identifying these countries, OPEC can take action to ensure that all its members adhere to the agreed-upon production levels and prevent price declines. Option A is incorrect because OPEC's goal is to maintain high oil prices, so producing at a level where price equals marginal cost is not desirable. Option B is incorrect because there is no indication that OPEC is concerned with preventing oil shortages. Option D is incorrect because OPEC wants to earn the highest possible revenue, so the marginal revenue for the last barrel of oil sold should be greater than its price.

The Organization of Petroleum Exporting Countries (OPEC)behaves in Many Ways