QUESTION 3 Part 1 Consider the following simultaneous game between Saudi Arabia and Nigeria with respect...

 

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QUESTION 3 Part 1 Consider the following simultaneous game between Saudi Arabia and Nigeria with respect to oil output. Understanding the Business Environment - AT 3 (Melb)-s1 2023 9| Page RMIT Classification: Trusted Nigeria (N) Low Output High Output Low Output N: $30m N: $50m SA: $200m SA: $150m Saudi Arabia (SA) N: $20m High Output SA: $160m SA: $100m N: $40m 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 above 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. Assume the game was played only once. REQUIRED: (0) Does Saudi Arabia have a dominant strategy? Explain (ii) I What is the Nash Equilibrium in this game? Explain (2 marks) (2 marks) O Based on your answer in (ii) above, briefly compare Saudi Arabia's incentive to cooperate to that of Nigeria. 'Cooperate' in this game means both countries follow the low output quota agreed upon as a member of the OPEC cartel. QUESTION 3 Part 1 Consider the following simultaneous game between Saudi Arabia and Nigeria with respect to oil output. Understanding the Business Environment - AT 3 (Melb)-s1 2023 9| Page RMIT Classification: Trusted Nigeria (N) Low Output High Output Low Output N: $30m N: $50m SA: $200m SA: $150m Saudi Arabia (SA) N: $20m High Output SA: $160m SA: $100m N: $40m 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 above 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. Assume the game was played only once. REQUIRED: (0) Does Saudi Arabia have a dominant strategy? Explain (ii) I What is the Nash Equilibrium in this game? Explain (2 marks) (2 marks) O Based on your answer in (ii) above, briefly compare Saudi Arabia's incentive to cooperate to that of Nigeria. 'Cooperate' in this game means both countries follow the low output quota agreed upon as a member of the OPEC cartel.