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Two co-conspiratorial criminals are arrested. When they are taken to the police station, they refuse to say anything and are put in separate interrogation rooms. Eventually, a police officer enters the room where Prisoner A is being held and says: “You know what? Your partner in the other room is confessing. So your partner is going to get a light prison sentence of just one year, and because you’re remaining silent, the judge is going to stick you with eight years in prison. Why don’t you get smart? If you confess, too, we’ll cut your jail time down to five years, and your partner will get five years, also.” Over in the next room, another police officer is giving exactly the same speech to Prisoner B. What the police officers do not say is that if both prisoners remain silent, the evidence against them is not especially strong, and the prisoners will end up with only two years in jail each.

The game theory situation facing the two prisoners is shown in [link] . To understand the dilemma, first consider the choices from Prisoner A’s point of view. If A believes that B will confess, then A ought to confess, too, so as to not get stuck with the eight years in prison. But if A believes that B will not confess, then A will be tempted to act selfishly and confess, so as to serve only one year. The key point is that A has an incentive to confess regardless of what choice B makes! B faces the same set of choices, and thus will have an incentive to confess regardless of what choice A makes. Confess is considered the dominant strategy or the strategy an individual (or firm) will pursue regardless of the other individual’s (or firm’s) decision. The result is that if prisoners pursue their own self-interest, both are likely to confess, and end up doing a total of 10 years of jail time between them.

The prisoner’s dilemma problem
Prisoner B
Remain Silent (cooperate with other prisoner) Confess (do not cooperate with other prisoner)
Prisoner A Remain Silent (cooperate with other prisoner) A gets 2 years, B gets 2 years A gets 8 years, B gets 1 year
Confess (do not cooperate with other prisoner) A gets 1 year, B gets 8 years A gets 5 years B gets 5 years

The game is called a dilemma because if the two prisoners had cooperated by both remaining silent, they would only have had to serve a total of four years of jail time between them. If the two prisoners can work out some way of cooperating so that neither one will confess, they will both be better off than if they each follow their own individual self-interest, which in this case leads straight into longer jail terms.

The oligopoly version of the prisoner’s dilemma

The members of an oligopoly can face a prisoner’s dilemma, also. If each of the oligopolists cooperates in holding down output, then high monopoly profits are possible. Each oligopolist, however, must worry that while it is holding down output, other firms are taking advantage of the high price by raising output and earning higher profits. [link] shows the prisoner’s dilemma for a two-firm oligopoly—known as a duopoly    . If Firms A and B both agree to hold down output, they are acting together as a monopoly and will each earn $1,000 in profits. However, both firms’ dominant strategy is to increase output, in which case each will earn $400 in profits.

Questions & Answers

prove or disprove that balance of trade of trade deficit is a cause of an abnormal demand curve?
Chioma Reply
what's the fixed cost at output zero
Saidou Reply
fixed cost stay the same regardless of the level of output
Luka
what are the differences between change in demand and change in quantity demand
Sulaiman Reply
what is consumers behaviour
Marfo Reply
importance of income
Emmanuel Reply
Tfor settlement of debt. For purchases. For payment of bills. For daily transactions. For social & recreational enjoyment. For business purposes etc
Oyetunde
thanks
Emmanuel
For investment purposes For security purposes For purpose of forecasting & strategizing.
Oyetunde
what is the real definition of economics
jegede Reply
Economics is the study of the use and allocation of (scarce) resources
demsurf
Jegede, what is the "non" real definition of economics then?
Ernest
Economics is a study of how human use limited resources to fulfil their unlimited want
Musa
the study of how a society use scarce factors of production efficiently so as meet aggregate social demand
Marc
what is oligopoly?
Sailo
Oligopoly can be defines as a market where by there is only tmo or more sellers of a commodity
Paamat
Sory not tmo but two
Paamat
incidence of production there is a choice do you agree? justify
Oduro Reply
What is incidence of production? do u mean incidence of tax?
Aryeetey
I want to know about Richard lipsey and robin as the economist and their definition proposed by them
Musa Reply
what are the causes of scarcity And what are the goal scarcity
Musa
scarcity only exist because human wants are unlimited...if human just know how to be contented then scarcity will not exist
Ylaine
what is ment by possibility curve
Ruzaiq
define accounting?teatly
Ahmed Reply
Is the recording, classifying, interpreting record of all transaction
Yuusuf
is still the act of measuring, interpreting and communicating of financial issues
Yuusuf
measuring business or individual finance
Zeyi
Accounting is the process of collecting,recording,classifying,summarizing and interpreting/presenting financial data to the stakeholders for their economic decision making
asri
hi
Otilina
hi
AVIAH
wat is PPC
ALLAJI
what are the different between need and wants
Musa Reply
the major difference is necessity
Yuusuf
explain any four tool of monetary policy to solve the problem of inflation.
Alicesha Reply
bank rate,open market operation,legal reserve requirement
Johnson
what's marginal utility?
Abena Reply
the additional utility you get if you can consume one more unit of the good x
Luka
Thanks... then what's the law of diminishing marginal utility ?
Abena
The utility decreases with every unit you consume (most of the time). The first unit of consumption will therefore give you the highest utility. Sorry about my english
Luka
Okay... I understand now
Abena
Great!
Luka
hello room
Lawal
one of the leading industrial nations of the world ranking second in manufacturing output after the USA is a. Russia b. Germany c. Britain d. Japan
Lawal
china
Siddharth
japan
Siddharth
good morning
Lamin
hi
Rafiu
hi
nivedha
japan
Ylaine
morning
Adegboye
no other questions?
Ylaine
hii
Dipun
I am from India
Dipun
same question are not mentioned
Dipun
first you give my answer
Dipun
hi
adelakun
welcome
Ahmed
dipun naik
Ahmed
whats your question
adelakun
whats your question
adelakun
I am from India
Dipun
retype the questions
adelakun
marginal untility is the last point desire of a consumer that gets benefit from related good/ service.
Saboor
Why are some countries rich and why are some countries poor? . is poorness a human cause?
Yacquub
well several factors are included...it's not just because of human..
Ylaine
what is a correct reason
Vijay
Japan
Lawal
countries which are rich they are developed countries they have good resources minerals technology power knowledge to use the resources poor countries are under developing countries they have lack of resources, knowledge and if they have these so they dont know the use of these resources.
Siddharth
so these knowledgeable people move /migrate to the other rich/developed countries
Siddharth
Poverty of a country is also related to cultural, economical, and military domination. Usually, the dominant country imposes all of these powers when diplomatically needed or sometimes by force.
Ernest
You can also have considerable poverty in a rich country when such poverty is measured within sectors of its population. In other words, economic indicators can sometime mask such poverty.
Ernest
For example, the U.S.A. has a very high measure of GDP per capital, but millions of Americans ( a considerable amount are children) live in poverty.
Ernest
So poverty is not an easy social phenomenon to pin down neatly into one social realm or another.
Ernest
pls what is price ceiling
jasmine
its the max price a seller can charge for a product, mostly imposed by the government to protect the consumer
Luka
its the max price a seller can charge for a product, mostly imposed by the government to protect the consumer plus it must be imposed below the equilibrium price in order to be effective. A shortage will also be created after its imposition.
Zafar
can happiness be measured?
Ylaine
Happiness is too subjective to be measured as an economic phenomenon or reality. I think that happiness happens at several levels of the human condition: biological, psychological, intellectual and at the level of the soul. How can economic theory be scientific about it?
Ernest
about I have read of something called gross happiness index.
Ylaine
Germany
Arthur
what's Neo classical definition of economic
Mohammed
hi
ALLAJI
economic is a social science studied as a relationship between end and needs scarce which have alternative uses
ALLAJI
what's equilibrium
Daniel
What is economies of scale
Jeremiah Reply
In microeconomics, economies of scale are the sum of total costs saved or that a firm has advantage over its competitors due to its scale of operations. More specifically, it is the firm's cost savings per unit of output that it gains as its production increases in scale.
Ernest
one of the leading industrial nations of the world ranking second in manufacturing output after the USA is ......... a. Russia b. Germany c. Britain d. Japan
Lawal
what is supply of demand?
Joseph Reply
supply of demand?
Yuusuf
1)importance of internal trade. 2) international trade barriers 3) principles of international trade
umar Reply
how can tell me about the GDP
Mahmood

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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