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.Which of the following statements is true?

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.Which of the following statements is true?

Quizplus · Accepted Answer

In this game, Saudi Arabia has a dominant strategy of producing high output regardless of Nigeria's choice. Similarly, Nigeria also has a dominant strategy of producing high output regardless of Saudi Arabia's choice. Therefore, this game has a noncooperative, dominant strategy equilibrium at (high output, high output) with both countries earning a profit of $5 million per day.

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