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.