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. If Irun fails to live up to the production agreement and overproduces, which of the following statements will be true of Urun's condition?
A)Urun will invariably be worse off than before the agreement was broken.
B)Urun will counter by decreasing its production in order to maintain price stability.
C)Urun's profit will be maximized by holding its production constant.
D)Urun's profit will be unaffected by Irun's actions.

Question

Scenario 17-1.
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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. If Irun fails to live up to the production agreement and overproduces, which of the following statements will be true of Urun's condition?
A)Urun will invariably be worse off than before the agreement was broken.
B)Urun will counter by decreasing its production in order to maintain price stability.
C)Urun's profit will be maximized by holding its production constant.
D)Urun's profit will be unaffected by Irun's actions.

Quizplus · Accepted Answer

If Irun overproduces, the increased supply will likely lower the market price of oil, reducing Urun's profits compared to the agreed-upon production levels.

Scenario 17-1. ​

Scenario 17-1.