Use the following to answer question:
-(Table: Demand for Crude Oil) Look at the table Demand for Crude Oil. For simplicity, assume that the marginal cost of producing crude oil is 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

Use the following to answer question: 
-(Table: Demand for Crude Oil) Look at the table Demand for Crude Oil. For simplicity, assume that the marginal cost of producing crude oil is 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

Quizplus · Accepted Answer

When both firms use a tit-for-tat strategy, they will both 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 they will both end up with less profit.

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