Since 1972, the world price of oil has been largely determined by OPEC, which controls about 75 percent of the world's proven oil reserves. Since 1972 the price of oil has
A) fluctuated. OPEC's situation is an example of a prisoner's dilemma.
B) risen slowly, but steadily. Members of OPEC fear that if they raise the price of oil too quickly this will lead oil-buying nations to accuse OPEC of price gouging, which is illegal under international law.
C) been tied by OPEC to the rate of inflation in the United States. If, for example, the rate of inflation is 5 percent in one year, OPEC will raise the price of oil by 5 percent the next year.
D) steadily fallen through the 1970s, then risen continually in the years since then. OPEC's actions are an example of implicit collusion.
Question 2
Refer to Figure 12-11. Suppose the prevailing price is 20 and the firm is currently producing 1,350 units. In the long-run equilibrium, the firm represented in the diagram
A) will continue to produce the same quantity. B) will reduce its output to 750 units.
C) will reduce its output to 1,100 units. D) will cease to exist.
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