Table 9-7 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 9-7 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 9-7.What is the Nash equilibrium in this game?

Question

Table 9-7  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 9-7 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 9-7.What is the Nash equilibrium in this game?

Quizplus · Accepted Answer

The Nash equilibrium occurs when neither player has an incentive to change their strategy unilaterally. In this game, Saudi Arabia has a dominant strategy of low output, regardless of what Nigeria does. Nigeria's best response to Saudi Arabia's low output is to produce a high output, as this gives them a higher profit than producing a low output. Therefore, the Nash equilibrium is for Saudi Arabia to produce a low output and earn a profit of $80 million, and for Nigeria to produce a high output and earn a profit of $30 million.

Table 9-7 Suppose OPEC Has Only Two Producers, Saudi