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 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 reducing 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.
E) make sure competition is increased.

Question

Quizplus · Accepted Answer

The economic reason for monitoring production rates of member countries would be to detect those member countries that are reducing prices by producing more than their assigned quotas. This is because an international cartel like OPEC operates by having member countries agree to limit their production, thereby reducing the global supply of oil and increasing the price. If a member country were to produce more oil than its assigned quota, it would increase the global supply of oil and therefore lower the price, which would harm the other member countries. By monitoring production rates, the cartel can detect and punish any member country that violates the agreed upon quotas.

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