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

question 78

Multiple Choice

Table 11-8
Suppose OPEC has only two producers, Saudi Arabia and Ecuador. Saudi Arabia has far more oil reserves and is the lower-cost producer compared to Ecuador. 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.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 Ecuador does.

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Definitions:

Process Costing System

A costing method used in industries where production is continuous, assigning costs to units of product based on the process they go through.

Direct Materials

The raw materials that are used directly in the manufacturing of a product and can be easily traced to it.

Journal Entry

A record in the accounting journal that represents a business transaction, including information such as the date, accounts affected, and amounts debited and credited.

Process Costing System

An accounting system used to evaluate the cost associated with a production process that continuously produces homogeneous products.