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. The fact that both countries have colluded to earn higher profit shows their desire to keep their combined level of output
A)above the monopoly level.
B)below the Nash equilibrium level.
C)equal to the Nash equilibrium level.
D)above the Nash equilibrium level.

Question

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. The fact that both countries have colluded to earn higher profit shows their desire to keep their combined level of output
A)above the monopoly level.
B)below the Nash equilibrium level.
C)equal to the Nash equilibrium level.
D)above the Nash equilibrium level.

Quizplus · Accepted Answer

Colluding to earn higher profits typically involves reducing output to below the Nash equilibrium level, where each firm acts independently. By doing so, they can increase prices and maximize joint profits, similar to a monopoly.

Scenario 17-1. ​

Scenario 17-1.