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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

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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What would be the correct answer in this case?  I was surprised that "B. The Nash equilibrium is for Saudi Arabia to produce a high output and for Kuwait to produce a high output"  was incorrect.

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
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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