Table 11-8
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 11-8 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 11-8.Is there a dominant strategy for Ecuador and,if so,what is it?

Question

Table 11-8
  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 11-8 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 11-8.Is there a dominant strategy for Ecuador and,if so,what is it?

Quizplus · Accepted Answer

Ecuador's dominant strategy 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 by producing a high output. If Saudi Arabia produces a high output, then Ecuador's profit is still higher by producing a high output rather than a low output. Therefore, the best choice for Ecuador is to produce a high output as it maximizes its profits.

Table 11-8 Suppose OPEC Has Only Two Producers, Saudi Arabia