Table 14-3

Suppose OPEC has only two producers, Saudi Arabia and Ecuador. Saudi Arabia has far more oil reserves and is the lower-cost producer compared to Ecuador. The payoff matrix in Table 14-3 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 14-3.Is there a dominant strategy for Ecuador and, if so, what is it?

Question

Table 14-3
  
Suppose OPEC has only two producers, Saudi Arabia and Ecuador. Saudi Arabia has far more oil reserves and is the lower-cost producer compared to Ecuador. The payoff matrix in Table 14-3 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 14-3.Is there a dominant strategy for Ecuador and, if so, what is it?

Quizplus · Accepted Answer

There is a dominant strategy for Ecuador, which is to produce a high output, regardless of what Saudi Arabia does.

If Saudi Arabia produces a low output, then Ecuador's profit is higher with a high output (9 > 6). 
If Saudi Arabia produces a high output, then Ecuador's profit is also higher with a high output (2 > -2).

Therefore, regardless of Saudi Arabia's decision, Ecuador's best choice is to produce a high output, making option D the correct answer.

Table 14-3 Suppose OPEC Has Only Two Producers, Saudi Arabia and Ecuador