Table 12.3 Suppose OPEC Has Only Two Producers, Saudi Arabia and Nigeria

question 33

Multiple Choice

Table 12.3

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 12.3 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 12.3.Is there a dominant strategy for Saudi Arabia and, if so, what is it?

• A)Yes, the dominant strategy is to produce a high output.
• B)Yes, the dominant strategy is to produce a low output.
• C)No, there is no dominant strategy.
• D)Yes, it has a dominant strategy depending on what Nigeria does.

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Definitions:

Discount Rate

The interest rate that a central bank charges financial institutions for short-term loans, or the rate used in discounted cash flow analysis to determine the present value of future cash flows.

Present Value of Annuity

The current worth of a series of cash flows generated by an annuity, calculated using a particular rate of return or discount rate.

Series of Payments

Regular payments made over a period, often associated with loans or annuities, where each payment is the same amount.

Semiannual Payments

Payments that are made twice a year, often encountered in the context of loan repayments or bond interest payments.