FIGURE 11.3 Optimal Quantity Choices
Saudi Arabia’s optimal production quantity is dependent on Iran’s production quantity. If the Iranian output level is 10 million bpd, Saudi Arabia’s optimal output is 25 million bpd, where its residual marginal revenue curve intersects its marginal cost. If Iranian output increases to 30 million bpd, Saudi Arabia’s residual demand and residual marginal revenue curves shift to 
and 
As a result, Saudi Arabia’s optimum output decreases to 15 million bpd.
and As a result, Saudi Arabia’s optimum output decreases to 15 million bpd.