In 2003, Saudi Arabia and Venezuela produced an average of 8 million and 3 million barrels of oil a day, respectively. Production costs were about $10 a barrel and the price of oil averaged $28 per barrel. Each country had the capacity to produce an additional 1 million barrels per day. At that time, it was estimated that each country 1-million-barrel increase in supply would depress the average price of oil by $3. A. Draw a normal form representation of a game where Saudi Arabia has 2 possible actions to produce 8 million or 9 million barrels of oil and Venezuela has 2 possible actions: to produce 3 or 4 million barrels of oil. Fill in the payoffs for each player and action. Draw a table. B. What action should each country take and why? C. Does the asymmetry in the countries' sizes cause them to take different attitudes towards expanding out? Explain why or why not.
In 2003, Saudi Arabia and Venezuela produced an average of 8 million and 3 million barrels of oil a day, respectively. Production costs were about $10 a barrel and the price of oil averaged $28 per barrel. Each country had the capacity to produce an additional 1 million barrels per day. At that time, it was estimated that each country 1-million-barrel increase in supply would depress the average price of oil by $3.
A. Draw a normal form representation of a game where Saudi Arabia has 2 possible actions to produce 8 million or 9 million barrels of oil and Venezuela has 2 possible actions: to produce 3 or 4 million barrels of oil. Fill in the payoffs for each player and action. Draw a table.
B. What action should each country take and why?
C.
Does the asymmetry in the countries' sizes cause them to take different attitudes towards expanding out? Explain why or why not.
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