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

question 120

Multiple Choice

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.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:

Variable Cost

Costs that vary directly with the level of production or the volume of services rendered, such as raw materials and direct labor.

Fixed Costs

Costs that remain constant regardless of the amount of products or services a company generates, including expenses like lease payments, wages, and premiums.

Break-even Point

The volume of production or sales at which total revenues equal total costs, resulting in neither profit nor loss.

Variable Cost

Expenses that vary directly with the level of production or sales volume, such as raw materials and direct labor.