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 Nigeria 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 Nigeria and, if so, what is it?

Quizplus · Accepted Answer

There is a dominant strategy for Nigeria, which is to produce a high output. This is because regardless of Saudi Arabia's decision, if Nigeria produces a low output, it will earn a profit of 0. However, if it produces a high output, it will earn a profit of $3 million if Saudi Arabia produces a low output or $1 million if Saudi Arabia also produces a high output. Therefore, producing a high output is the best choice for Nigeria.

Table 112 Suppose OPEC Has Only Two Producers, Saudi Arabia