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In the industry at large, the incentive is to keep producing as at out as you can, once investment costs have been sunk into the
In the industry at large, the incentive is to keep producing \"as at out as you can", once investment costs have been sunk into the ground, says Simon Henry, Shell's chief nancial ofcer. He says it is sometimes more expensive to stop production than to keep pumping at low prices, because of the high cost of mothballing wells. He suggested that rms will not pack up so long as prices cover daytoday costs, in some cases as low as $15 a barrel. It mayr be uneconomic to drill new deepwater wells at prices under $60 a barrel, he says, but once they are built it may still make economic sense to keep them running at prices well below that. Such resilience is used by some to justify why they expect prices to remain "lower for longer\". 6. What does this excerpt suggest about how rms will behave in the short run? 7. Based on the information given about this market, what do you think the time horizon will be for this industries 'long run'? What will happen in the long run? Notice that in our model when prices fall, even in the short run individual rms will decrease production. In reality, rms part of the Organization of Petroleum Exporting Countries [OPEC] made a pact to keep production high, to try to retain market share and keep out competitors. In his book \"The Prize\
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