Question-5) [25 marks] Premier Oil and "Mari Petroleum are the only two firms moving crude oil from an oil-producing reg

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Question 5 25 Marks Premier Oil And Mari Petroleum Are The Only Two Firms Moving Crude Oil From An Oil Producing Reg 1 (43.92 KiB) Viewed 33 times

Question-5) [25 marks] Premier Oil and "Mari Petroleum are the only two firms moving crude oil from an oil-producing region to a port in Atlantis. The table below shows the annual profit (in Millions of euros) that each firm would earn at different capacities. At their current capacities Premier Oil carns 40 milion euros, and "Mari Petroleum' earns 18 million euros annually. Each company is considering an expansion of its capacity. Mari Petroleum' is a fairly small company and can consider only a small expansion to its capacity unlike "Premier Oir which has an option for both a small or a large expansion Mari Petroleum Not Expand 40,18 Small 28, 22 Premier Oil Not Expand Small Large 48, 14 38,10 32,16 24.5 Answer parts (a), (b) and (c) below. Note: For parts (b) and (c), upload the scans for game tree however, write all accompanying explanation in the space provided a) If Premier Oir & Mari Petroleum simultaneously decide on their expansion strategy will there be a unique Nash equilibrium? If so, what is it (explain how you arrived at your answer)? If not, why not? Do you think this game is somehow similar to prisoners' dilemma? Briefly explain (4+3] Your answer b) Construct a game tree with Premier Oil as the first mover. Does Premier or has a first-mover advantage if the firms were to choose capacities sequentially rather than simultaneously? If so, briefly explain how it might credibly implement this strategy. (10) Your answer c) Suppose you are to advise "Mari Petroleum on its expansion strategy. If firms were to choose capacities sequentially, should Mari Petroleum move first? Explain using a game tree. [8] Your answer