Suppose there are only two countries, Iraq and Iran, producing oil in the world

Question

Suppose there are only two countries, Iraq and Iran, producing oil in the world (so they are both oligopolists). Assume the leaders of the two countries believe he payoff to alternative oil production are as follows:

$40 billion profit for Iraq

$40 billion profit for Iran

$30 billion profit for Iraq

$60 billion profit for Iran

$60 billion profit for Iraq

$30 billion profit for Iran

$50 billion profit for Iraq

$50 billion profit for Iran

(a): when Iraq chooses high production, Iran’s best decision is

(a1) high production (a2) low production

(b): when Iraq chooses low production, Iran’s best decision is

(b1) high production (b2) low production

(c): given answers of (a) and (b), Iran’s dominant strategy is

(c1) high production (c2) low production

(d): by symmetry, Iraq’s dominant strategy is

(d1) high production (d2) low production

(e): the Nash equilibrium is______________________________________________

Iraq's Decesion High Production Low Production Iran's Decesion High Production

$40 billion profit for Iraq

$40 billion profit for Iran

$30 billion profit for Iraq

$60 billion profit for Iran

Low Production

$60 billion profit for Iraq

$30 billion profit for Iran

$50 billion profit for Iraq

$50 billion profit for Iran

Explanation / Answer

a)High production

b)High production

c)High production

d)low production

e)

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