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What actions should each country take and why

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In mid-2010, Saudi Arabia and Venezuela (both members of OPEC) produced an average of 8 million and 3 million barrels of oil a day, respectively. Production costs were about $20 per barrel, and the price of oil averaged $80 per barrel. Each country had the capacity to produce an extra 1 million barrels per day. At that time, it was estimated that each 1-million-barrel increase in supply would depress the average price of oil by $10.

a. Fill in the missing profit entries in the payoff table.

b. What actions should each country take and why?

 

Saudi Arabia

 

8  M barrels

9  M barrels

 

Venezuela

          ,         

          ,         

          ,         

          ,         

 
 

3 M barrels            4 M barrels

 c. Does the asymmetry in the countries' sizes cause them to take different attitudes toward expanding output? Explain why or why not. Comment on whether or not a prisoner's dilemma is present.

Reference no: EM13880457

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