(Table: Demand for Crude Oil) Look at the table Demand for Crude Oil.For simplicity, assume
That the cost of producing crude oil is zero-the marginal cost of crude oil equals zero.There are only two producers of crude oil, and they cannot cooperate.But they play this game every week, each player has a tit-for-tat strategy, and the other player knows this.When both firms use a
Tit-for-tat strategy, firm 1 will produce ________ barrels, and firm 2 will produce ________
Barrels.
A)40; 40
B)40; 50
C)50; 50
D)30; 30

Question

Quizplus · Accepted Answer

When both firms use a tit-for-tat strategy, each firm will produce 40 barrels of oil. This is because each firm knows that if it produces more than 40 barrels, the other firm will also produce more than 40 barrels, and both firms will end up with less profit.

(Table: Demand for Crude Oil) Look at the Table Demand