The Cartel Model: Iran and Iraq. For simplicity, let’s look at the production of just two members of the OPEC: Iran and Iraq. For further simplicity, let’s assume that there are only two production levels available: 2 or 4 million barrels of crude oil per day. Depending on their decision, the total output on the world market could be 4, 6, or 8 million barrels. Suppose the price could be $25, $15, and $10 per barrel respectively. Extraction costs are $2 per barrel in Iran and $4 per barrel in Iraq. a. Complete the payoff matrix (values in 000,000). Round up your answers to no decimals. Firm 2 Q = 2 Q = 4 Firm 1 Q = 2 , , Q = 4 , , b. The NE is(are): (Write A, B, C, D, or E) A. (Q = 2, Q = 2) B. (Q = 4, Q = 4) C. (Q = 2, Q = 4) D. (Q = 2, Q = 2) & A. (Q = 4, Q = 4) A. (Q = 4, Q = 2)
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The Cartel Model: Iran and Iraq. For simplicity, let’s look at the production of just two members of the OPEC: Iran and Iraq. For further simplicity, let’s assume that there are only two production levels available: 2 or 4 million barrels of crude oil per day. Depending on their decision, the total output on the world market could be 4, 6, or 8 million barrels. Suppose the price could be $25, $15, and $10 per barrel respectively. Extraction costs are $2 per barrel in Iran and $4 per barrel in Iraq.
a. Complete the payoff matrix (values in 000,000). Round up your answers to no decimals.
Firm 2
Q = 2
Q = 4
Firm 1
Q = 2
,
,
Q = 4
,
,
b. The NE is(are): (Write A, B, C, D, or E)
A. (Q = 2, Q = 2)
B. (Q = 4, Q = 4)
C. (Q = 2, Q = 4)
D. (Q = 2, Q = 2) & A. (Q = 4, Q = 4)
A. (Q = 4, Q = 2)
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