Table 9.2 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 9.2 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 9.2.The Nash equilibrium in this game is:

Question

Table 9.2  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 9.2 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 9.2.The Nash equilibrium in this game is:

Quizplus · Accepted Answer

In a Nash equilibrium, each player's strategy is the best response to the other player's strategy. In this case, if Saudi Arabia produces a low output, Nigeria's best response is to produce a high output and earn a profit of $30 million, which is greater than its profit of $20 million from low output. Similarly, if Nigeria produces a high output, Saudi Arabia's best response is to produce a low output and earn a profit of $80 million, which is greater than its profit of $60 million from high output. Therefore, the Nash equilibrium is where Saudi Arabia produces a low output and earns a profit of $80 million, and Nigeria produces a high output and earns a profit of $30 million.

Table 92 Suppose OPEC Has Only Two Producers, Saudi Arabia