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which of the following statements is (are) correct?
A. The Organization of Petroleum Exporting Countries (OPEC) can be classified as a cartel whose concern is to control production levels of oil.
B. OPEC is able to raise the price of its product by setting production levels for each of its members and decreasing the market supply of oil to an amount less than the competitive level.
C. If member countries set their level of production at a higher level in order to capture a larger share of the total profit available, then OPEC's effect on the world price of oil will be lessened.
D. All of the above.
E. A and B, only
10. Imagine that two oil-producing companies, ABC Pumping and XYZ Drilling, own adjacent oil fields. Under the fields is a common pool of oil worth $48 million. Drilling a well to recover oil costs $3 million per well. If each company drills one well, each will get half of the oil and earn a $21 million profit ($24 million in revenue – $3 million in costs). Assume that if you have X percent of the total wells then you will collect X percent of the total revenue. Which of the following statements is (are) correct?
(x) If ABC were to drill a second well, its profit would be $26 million if XYZ did not drill a second well and XYZ would earn a profit of $13 million.
(y) If both ABC and XYZ drill a second well, both ABC and XYZ would each earn profit of $18 million.
(z) XYZ’s dominant strategy would suggest that XYZ would drill a second well if ABC drilled a second well.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (z) only
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