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?

Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781305971509

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter9: Application: International Trade

Section: Chapter Questions

Problem 1CQQ

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