Suppose only two countries produce oil, Iran and Iraq. Both can produce either 2 or 4 million barrels a day (bbd). The decision is made simultaneously. This yields a total production of 4, 6 or 8 million bbd. At these production levels, world prices are $25, $15 and $10 per barrel. Assume production costs for Iran are $2/barrel and $4/barrel for Iraq. a. If Iran has a discount factor of .31, what is the minimum amount of time that Iraq has to threaten to punish them for high production to get them to cooperate on low production?

Suppose only two countries produce oil, Iran and Iraq. Both can produce either 2 or 4 million barrels a day (bbd). The decision is made simultaneously. This yields a total production of 4, 6 or 8 million bbd. At these production levels, world prices are $25, $15 and $10 per barrel. Assume production costs for Iran are $2/barrel and $4/barrel for Iraq. a. If Iran has a discount factor of .31, what is the minimum amount of time that Iraq has to threaten to punish them for high production to get them to cooperate on low production?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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