Table 11.2 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 11.2 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 11.2.Is there a dominant strategy for Saudi Arabia and, if so, what is it?

Question

Table 11.2  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 11.2 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 11.2.Is there a dominant strategy for Saudi Arabia and, if so, what is it?

Quizplus · Accepted Answer

Saudi Arabia's dominant strategy is to produce a low output. This is because regardless of what Nigeria does, Saudi Arabia earns a higher profit by producing a low output than by producing a high output. If Nigeria also produces a low output, Saudi Arabia earns $3 billion per day by producing a low output, which is $1 billion more than it would earn by producing a high output. If Nigeria produces a high output, Saudi Arabia still earns a higher profit by producing a low output. Therefore, there is a dominant strategy for Saudi Arabia to produce a low output.

Table 112 Suppose OPEC Has Only Two Producers, Saudi Arabia