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?

What would be the effect of ANWR production on the world price of oil given that ɛ = - 0.50, 1 = 0.40, the pre-ANWR daily world production of oil is Q, = 82 million barrels per day, the pre-ANWR world price is p, = $100 per barrel, and daily ANWR production would be 0.8 million barrels per day? For simplicity, assume that the supply and demand curves are linear and that the introduction of ANWR oil would cause a parallel shift in the world supply curve to the right by 0.8 million barrels per day. Determine the long-run linear demand function that is consistent with pre-ANWR world output and price. The long-run demand function is Q = 123 – 0.41p`. Determine the long-run linear supply function that is consistent with pre-ANWR world output and price. The long-run supply function is Q = 49.2 + 0.328p`. Determine the post-ANWR long-run linear supply function. The long-run supply function with ANWR oil production is Q= 50 + 0.328p'. Use the demand curve and the post-ANWR supply function to…

If firms are in a competitive market, firms use marginal cost=price as a price-setting rule. Why multinational firms do not follow the price-setting rule like the firms in the competitive market (or why exporting firms do not follow the price-setting rule)? Your answer should be based on the characteristic market and the internal economies of scale. What is the price-setting rule for multinational firms?

(h) Suppose you conduct an opinion poll among individuals at Home, in which you ask them whether they have benefitted from international trade. What do you predict the response would be? Is this consistent with the empirical evidence we observe about people’s support for free trade in reality?