Question

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 the table below 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. Low Saudi Arabia's (SA) output Low High SA: $200M profit SA: $180M profit N: $15M profit N: $12M profit High SA: $190M profit SA: $175M profit N: $35M profit N: $25M profit Nigeria's (N) output 1) What is Nigeria's dominant strategy? Why 2) What is Saudi Arabia's dominant strategy? Why?

Answer 1

Dominant strategy refers to that strategy of a player in a game which is more profitable for the player irrespective of the fact that what the opponent player's strategy is. It means dominant strategy will provide better results to a player in every case and will not be impacted by the other player's strategy.

The answers to the questions while keeping in mind the above definition are explained as follows:

1.

SA Qutpur Low Joioi Sute O)sr ctio Hagh SA: $180M pus N: $12M piejit ano pHVNAqor 15 10 how SA: $200M profit N: 4 15M Pret N outpur wigh b: SA $190 M Preyit N: 4 35M Prisit SA 4175M Pt NA 29 M Prt wi Nigeria's (N) beminant Sbrategy Nigcias Demimant Strategy would be to Preducing High Outpur iepdung menimum quomtity beyerd aimed queta Reaeon: Hene, for Nigcria thu peit that it ge m taeing up high outpult is geaa than low outpit boespective y Secit Saudli Araki (SA) tategy Low output or High. Aryit pm 'Low $1SM pryit Hem Nigeria has thoia to ge-far either Low purm High i 35m. thu, N will go for High outpit a presit 435m) a mou thams ism sumilarily iSA gees for Hgh output, thin aleo High Dutput o Tagiria prubvidas maie peigit (8asm7 $12m) Homce, whuther SA taku up high r low adtput, Nageria will prejer high output as pgoit is more in thù case. Thus, High output wil be it'dominant shategy.

2.

2) Saudi drabia's (SP) deminant Stratigy: SA Domwinamt oratgy h predueing theoPEe auigned gueta. Roason: would be peoducing Lew Butput Fer Saudi pralia, the peait thatit geti em paducing Dow output i guatu tham hugh outut vespactive rigonia Ltrorly Nigeuia pueduces law autput, then sA has hoe eptiens Je iher 'alow outut high Outpuct ercit fou SA pem low cutput 200 ueu goia Acyit fer sA forem tugh oitput8OM gos tor les low output as prent s moe in Hs Corse (9200m g 130M) Trus,SA will Sumulanly Nageria producu high Butput, them alo low ediput ter sA gu more pueir (190 MJG /nSM) Hunce uhatheu Nepvia peduces lo os high outpedt SA will go for low 'oupur as this coae ito mepie more n will e it dominant hakay Truu, Low Output