The Organization of Petroleum Exporting Countries (OPEC) behaves in many ways li

Question

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:

make sure that each member country is producing at an output level at which price equals marginal cost.

make sure all the member countries produce at least their quotas so that there will be no oil shortage.

detect those member countries that are depressing prices by producing more than their assigned quotas.

make sure that the marginal revenue for the last barrel of oil sold by each member country is less than its price.

make sure that each member country is producing at an output level at which price equals marginal cost.

make sure all the member countries produce at least their quotas so that there will be no oil shortage.

detect those member countries that are depressing prices by producing more than their assigned quotas.

make sure that the marginal revenue for the last barrel of oil sold by each member country is less than its price.

Explanation / Answer

Cartels, like OPEC work on mutual cooperation and agreement among firms to control and fix their prices and/or exclude other potential competitors from entering the market.

The only fear cartels have is of noncooperation by any firm, which will lead to losses for another firms, and thus the breakup of 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:

1. detect those member countries that are depressing prices by producing more than their assigned quotas.

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