Table 12.3

Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in Table 12.3 shows the profits earned per day by each country. "Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota.
-Refer to Table 12.3.Is there a dominant strategy for Nigeria and, if so, what is it?

Question

Table 12.3
  
Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in Table 12.3 shows the profits earned per day by each country. "Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota.
-Refer to Table 12.3.Is there a dominant strategy for Nigeria and, if so, what is it?

Quizplus · Accepted Answer

Nigeria's dominant strategy is to produce a high output, regardless of what Saudi Arabia does. If Saudi Arabia produces a low output, Nigeria earns a profit of $4 million by producing a high output. If Saudi Arabia produces a high output, Nigeria still earns a profit of $1 million by producing a high output. Therefore, producing a high output is the best choice for Nigeria in both scenarios, making it a dominant strategy.

Table 12.3 Suppose OPEC Has Only Two Producers, Saudi Arabia and Nigeria