As a producer' association, the OPEC expects its members to maintain production where marginal cost is?
Answer Details
As a producer association, the OPEC (Organization of the Petroleum Exporting Countries) expects its members to maintain production where marginal cost is less than price.
Marginal cost is the additional cost incurred by a company to produce one more unit of a product. In the case of OPEC, the marginal cost of producing one more barrel of oil is generally lower for its member countries due to their abundant oil reserves and favorable geological conditions.
Therefore, OPEC expects its members to maintain production levels where the marginal cost of producing one more barrel of oil is less than the market price of oil. This allows member countries to maximize their profits while meeting the global demand for oil.
If the marginal cost of producing one more barrel of oil is greater than the market price, it would not be profitable for OPEC members to continue production at that level. Conversely, if the marginal cost is equal to the market price, it would be at the break-even point and would not be profitable to continue production.
Thus, the OPEC aims to maintain production levels where its member countries can maximize their profits while ensuring stability in the global oil market.