Answered: Assume there are only two oil producing…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter3: Interdependence And The Gains From Trade

Section: Chapter Questions

Problem 8PA

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V4. Assume there are only two oil producing countries in the world, C1 and C2. Each can export either 2 million or 4 million barrels of oil. If a total of 4 million barrels of oil are exported (both countries combined) then each barrel sells at $25. If there are 6 million barrels exported between them, each barrel sells at $15 and if there are 8 million barrels exported between them, then each barrel sells at $10. a) Write the “pay-off” matrix/table (i.e., the table or matrix indicating the strategies for each country, i.e., the amount of barrels they export and the revenue they make). b) Determine the Nash equilibrium for the game. c) Is there a strategy that results in larger revenue for both the countries? If so, which is that? d) For what wegitage for future payoff, δ, will both countries agree to use the strategy that benefits both of them, better?

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