Table 11-8 Suppose OPEC Has Only Two Producers, Saudi Arabia and Nigeria

question 411

Multiple Choice

Table 11-8
$\begin{array}{c}\text { Saudi Arabia's (S) Choices }\\\text { Nigeria's (N) Choices }\begin{array}{|c|c|c|}\hline &{\text { Low Output }} & \text { High Output } \\\hline \text { Low Output } & \begin{array}{l}\text { S: } \$ 100 \text { million profit } \\\text { N: } \$ 20 \text { million profit }\end{array} & \begin{array}{l}\text { S: } \$ 75 \text { million profit } \\\text { N: } \$ 12 \text { million profit }\end{array} \\\hline \text { High Output } & \begin{array}{l}\text { S: } \$ 80 \text { million profit } \\\text { N: } \$ 30 \text { million profit }\end{array} & \begin{array}{l}\text { S: } \$ 60 \text { million profit } \\\text { N: } \$ 20 \text { million profit }\end{array} \\\hline\end{array}\end{array}$
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 11-8 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 11-8.What is the Nash equilibrium in this game?

• A)In the Nash equilibrium both Saudi Arabia and Nigeria produce a low output and earn a profit of $100 million and $20 million respectively.
• B)In the Nash equilibrium both Saudi Arabia and Nigeria produce a high output and earn a profit of $60 million and $20 million respectively.
• C)In the Nash equilibrium Saudi Arabia produces a low output and earns a profit of $80 million and Nigeria produces a high output and $30 million respectively.
• D)There is no Nash equilibrium.

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