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.Which of the following statements is true?

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.Which of the following statements is true?

Quizplus · Accepted Answer

In this specific game, Saudi Arabia has a dominant strategy of producing at high output regardless of what Nigeria does, while Nigeria's dominant strategy is to produce at low output regardless of what Saudi Arabia does. Therefore, the Nash equilibrium is a non-cooperative, dominant strategy equilibrium, where both countries produce at high output and earn profits of $20 million a day each.

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