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.Which of the following statements is true?

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.Which of the following statements is true?

Quizplus · Accepted Answer

In this game, Saudi Arabia's dominant strategy is to always choose high output, regardless of Nigeria's choice, because its profit is always higher when producing at maximum capacity. Similarly, Nigeria's dominant strategy is to always choose low output, regardless of Saudi Arabia's choice, because its profit is always higher when following the OPEC assigned quota. Therefore, the Nash equilibrium is non-cooperative and dominant strategy, as each country pursues its own self-interest.

Table 92 Suppose OPEC Has Only Two Producers, Saudi Arabia