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Chapter 10: Q.12 (page 252)

Does each individual in a prisoner’s dilemma benefit more from cooperation or from pursuing self-interest? Explain briefly.

Short Answer

Expert verified

Yes, each individual in a prisoner's dilemma benefits more from cooperation rather than from pursuing self-interest.

Step by step solution

01

Step 1. Definition

The prisoner's dilemma is a situation in game theory when the benefits or payoffs from cooperation are greater than the gains from pursuing self-interest.

02

Step 2. Explanation

Consider two criminals are captured and questioned separately. If neither of them testifies against the other, they will serve a prison term. If one of them testifies against the other, the person who testifies will receive a lesser punishment while the other will receive a greater sentence. suppose they both testify against each other, they will both receive the maximum penalty. The greatest benefit or reward is obtained when both parties collaborate and do not testify against each other, rather than when they both act in their own self-interest and testify against each other.

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Most popular questions from this chapter

When OPEC raised the price of oil dramatically in the mid-1970s, experts said it was unlikely that the cartel could stay together over the long term—that the incentives for individual members to cheat would become too strong. More than forty years later, OPEC still exists. Why do you think OPEC has been able to beat the odds and continue to collude? Hint: You may wish to consider non-economic reasons.

Continuing with the scenario in question 1, in the long run, the positive economic profits that the monopolistic competitor earns will attract a response either from existing firms in the industry or firms outside. As those firms capture the original firm’s profit, what will happen to the original firm’s profit-maximizing price and output levels?

Continuing with the scenario in question 1, in the long run, the positive economic profits that the monopolistic

competitor earns will attract a response either from existing firms in the industry or firms outside. As those firms capture the original firm’s profit, what will happen to the original firm’s profit-maximizing price and output levels?

Suppose that, due to a successful advertising campaign, a monopolistic competitor experiences an increase in demand for its product. How will that affect the price it charges and the quantity it supplies?

Make a case for why monopolistically competitive industries never reach long-run equilibrium.
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