Consider the market for oil. Suppose for simplicity that there are only two oil producing countries-Saudi Arabia and Kuwait. Both countries must choose whether to produce a low output or a high output. These output strategies with corresponding profits are depicted in the payoff matrix. Kuwait's profits are in red and Saudi Arabia's are in blue. Suppose the two countries form a cartel. What is the cooperative equilibrium? OA. A cooperative equilibrium does not exist for this game. B. The cooperative equilibrium is for Saudi Arabia to produce a low output and Kuwait to produce a low output. C. The cooperative equilibrium is for Saudi Arabia to produce a low output and Kuwait to produce a high output. D. The cooperative equilibrium is for Saudi Arabia to produce a high output and Kuwait to produce a low output. E. The cooperative equilibrium is for Saudi Arabia to produce a high output and Kuwait to produce a high output. What is the Nash equilibrium for this game? OA. The Nash equilibrium is for Saudi Arabia to produce a low output and Kuwait to produce a low output. B. The Nash equilibrium is for Saudi Arabia to produce a high output and Kuwait to produce a high output. ○ C. The Nash equilibrium is for Saudi Arabia to produce a high output and Kuwait to produce a low output. OD. The Nash equilibrium is for Saudi Arabia to produce a low output and Kuwait to produce a high output. OE. A Nash equilibrium does not exist for this game. Low Output Saudi Arabia High Output Kuwait Low Output High Output $120 $75 $8 $13 $95 $70 $5 $8
Consider the market for oil. Suppose for simplicity that there are only two oil producing countries-Saudi Arabia and Kuwait. Both countries must choose whether to produce a low output or a high output. These output strategies with corresponding profits are depicted in the payoff matrix. Kuwait's profits are in red and Saudi Arabia's are in blue. Suppose the two countries form a cartel. What is the cooperative equilibrium? OA. A cooperative equilibrium does not exist for this game. B. The cooperative equilibrium is for Saudi Arabia to produce a low output and Kuwait to produce a low output. C. The cooperative equilibrium is for Saudi Arabia to produce a low output and Kuwait to produce a high output. D. The cooperative equilibrium is for Saudi Arabia to produce a high output and Kuwait to produce a low output. E. The cooperative equilibrium is for Saudi Arabia to produce a high output and Kuwait to produce a high output. What is the Nash equilibrium for this game? OA. The Nash equilibrium is for Saudi Arabia to produce a low output and Kuwait to produce a low output. B. The Nash equilibrium is for Saudi Arabia to produce a high output and Kuwait to produce a high output. ○ C. The Nash equilibrium is for Saudi Arabia to produce a high output and Kuwait to produce a low output. OD. The Nash equilibrium is for Saudi Arabia to produce a low output and Kuwait to produce a high output. OE. A Nash equilibrium does not exist for this game. Low Output Saudi Arabia High Output Kuwait Low Output High Output $120 $75 $8 $13 $95 $70 $5 $8
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Can you help me define Nash equillibrium? What would the right answer be in this case?
Transcribed Image Text:Consider the market for oil. Suppose for simplicity that there are only two oil producing countries-Saudi Arabia and
Kuwait. Both countries must choose whether to produce a low output or a high output.
These output strategies with corresponding profits are depicted in the payoff matrix. Kuwait's profits are in red and
Saudi Arabia's are in blue.
Suppose the two countries form a cartel. What is the cooperative equilibrium?
OA. A cooperative equilibrium does not exist for this game.
B. The cooperative equilibrium is for Saudi Arabia to produce a low output and Kuwait to produce a low output.
C. The cooperative equilibrium is for Saudi Arabia to produce a low output and Kuwait to produce a high output.
D. The cooperative equilibrium is for Saudi Arabia to produce a high output and Kuwait to produce a low output.
E. The cooperative equilibrium is for Saudi Arabia to produce a high output and Kuwait to produce a high output.
What is the Nash equilibrium for this game?
OA. The Nash equilibrium is for Saudi Arabia to produce a low output and Kuwait to produce a low output.
B. The Nash equilibrium is for Saudi Arabia to produce a high output and Kuwait to produce a high output.
○ C. The Nash equilibrium is for Saudi Arabia to produce a high output and Kuwait to produce a low output.
OD. The Nash equilibrium is for Saudi Arabia to produce a low output and Kuwait to produce a high output.
OE. A Nash equilibrium does not exist for this game.
Low Output
Saudi Arabia
High Output
Kuwait
Low Output
High Output
$120
$75
$8
$13
$95
$70
$5
$8
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