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1. There are two oil producers, Saudi Arabia and Iran. The market price will be $60/barrel...

1. There are two oil producers, Saudi Arabia and Iran. The market price will be $60/barrel if the total volume of sales is 9 million barrels daily, $50 if the total volume of sales is 11 million barrels daily, and $35 if the total volume of sales is 13 million barrels daily. Saudi Arabia has two strategies; either produce 8 million barrels daily or 6 million. Iran has two strategies; either produce 3 million barrels daily or 5 million. Assume for simplicity that marginal cost of production is zero.

a. What is the quantity the two countries wish to agree to produce to maximize the sum of profits?

b. Write out the normal form representation of this game. For the payoffs, record the profits for each country.

c. What is the Nash equilibrium in this game?

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