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Table 14-9 Yemen (Y) Low Output High Output S: $200 million S: $100 million Saudi Low Output Y: $30 million Y: $50 million Arabia (S)
Table 14-9 Yemen (Y) Low Output High Output S: $200 million S: $100 million Saudi Low Output Y: $30 million Y: $50 million Arabia (S) High Output S: $120 million S: $70 million Y: $10 million Y: $20 million 87) Refer to Table 14-9. Saudi Arabia and Yemen must decide how much oil to produce. Since the demand for oil is inelastic, relatively low production rates drive up prices and profits. Saudi Arabia, the world's largest and lowest cost producer, is able to influence market price; it has an incentive to keep output low. Yemen, on the other hand, is a relatively high cost producer with much smaller reserves. Use the payoff matrix in Table 14-9 to answer the following questions. a. What is the dominant strategy for Saudi Arabia? b. What is the dominant strategy for Yemen? c. What is the Nash equilibrium
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