Table 14-3

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 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 Nigeria and, if so, what is it?

Question

Table 14-3
  
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 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 Nigeria and, if so, what is it?

Quizplus · Accepted Answer

The dominant strategy for Nigeria is to produce a high output regardless of what Saudi Arabia does. If Saudi Arabia also produces a high output, Nigeria earns a profit of $8 million, which is greater than the profit of $5 million it earns by producing a low output. If Saudi Arabia produces a low output, Nigeria earns a profit of $12 million by producing a high output, which is also greater than the profit of $10 million it earns by producing a low output. Therefore, producing a high output is always the best strategy for Nigeria.

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