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

question 55

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.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 earns a profit of $30 million.
• D) There is no Nash equilibrium.

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Definitions:

Manufacturing Departments

Specific sections within a manufacturing facility where distinct stages of the production process are carried out, such as assembly or painting.

Machine-Hours

A measure of production output or work measurement based on the number of hours machines are operated.

Job-Order Costing System

A cost accounting system in which costs are assigned to specific jobs or batches, used in manufacturing and services.

Predetermined Overhead Rate

A rate used to allocate estimated overhead costs to products or services, based on a chosen activity base like labor hours or machine hours.