The citizens of the island country of Carribea were thrilled to learn a major oil deposit was discovered not far off the coast. They were less thrilled when they realized drilling resulted in unsightly blobs of oil washing up on their pristine white beaches and that building derricks spoiled the view from the balconies of the expensive beachfront hotels. Before the oil boom, tourism was Carribea's major industry, but fewer tourists now come to the island because of the oil production. The graph shows the crude oil market in Carribea. The social cost curve is currently identical with the private supply curve. Move the social cost curve to the appropriate position, assuming each barrel of crude oil costs Carribea $20 of tourism revenue. Next, place the DWL triangle to illustrate the deadweight loss caused by crude oil production at the private market equilibrium. Finally, place the consumer surplus (CS) and the producer surplus (PS) triangles on the graph using the socially efficient price and quantity as market equilibrium. Price of crude oil ($ per barrel) 145 135 ▲ DWL 125 social cost ▲ CS 115 ▲ PS 105 supply 95 85 75 65 55 45 8 2 2 2 2 988 35 25 15 0 1 2 3 4 5 6 7 8 9 10 Quantity of crude oil (millions of barrels) demand

In mid-2010, Saudi Arabia and Venezuela (both members of OPEC)produced an average of 8 million and 3 million barrels of oil a day,respectively. Production costs were about $20 per barrel, and the price ofoil averaged $80 per barrel. Each country had the capacity to producean extra 1 million barrels per day. At that time, it was estimated that each1-million-barrel increase in supply would depress the average price of oilby $10.a. Fill in the missing profit entries in the payoff table.b. What actions should each country take and why?Venezuela3 M barrels 4 M barrels8 M barrels _____, _____ _____, _____ Saudi Arabia9 M barrels _____, _____ _____, _____c10GameTheoryandCompetitiveStrategy.qxd 9/29/11 1:33 PM Page 430Summary 431c. Does the asymmetry in the countries’ sizes cause them to take differentattitudes toward expanding output? Explain why or why not. Commenton whether or not a prisoner’s dilemma is present.

Suppose that a product is produced in three factories X, Y and Z. It is known that factory X produces thrice as many items as factory Y, and that factories Y and Z produce the same number of items. Assume that it is known that 3 per cent of the itenis produced by each of the factories X and Z are defective while 5 per cent of those manufactured by factory Y are defective. All the items produced in the three factories are stocked, and an item of product is selected at random. (i) What is the probability that this item is defective? (ii) If an item selected at random is found to be defective, what is the probability that it was produced by factory X, Y and Z respectively?

Companies often choose to build plants compliant with stricter environmental standards when they locate in low-income countries with lax environmental standards. This is because Select the correct answer below: they want to improve the living conditions of people living in these countries designing an industrial plant is a complex and costly task, and so if a plant O works well in a high-income country, companies prefer to use the same design everywhere they want to show local companies that the environmental issues caused by production should be taken seriously and dealt with appropriately they want to have a better record of compliance with environmental laws than do locally-owned plants.