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Prisoners' Dilemma

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1. Briefly explain whether or not the Prisoners' Dilemma has a first-mover advantage.

2. Briefly discuss the rationale for an insurance company including a deductible on a typical policy.

3. Consider sales taxes. If the goal of government is to raise tax revenue when imposing such taxes, which category of goods should the government target?

On the other hand, if the goal of government is to reduce consumption of certain goods by taxing them, which category of goods should the government target?

Provide an example of a good from each category. Your examples may come from any nation.

4. Compare a market which is controlled by a single price monopolist to a perfectly competitive market. Address as many issues as you can in as much detail as you can.

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1. The prisoner's dilema doesn't have a first move advantge because regardless of what the other person does, the best strategy is to confess. Even if one prisoner knew what the other has done, that first prisoner would be better off confessing.

2. An insurance company exists to sell security to its clients. It assumes the risk of an accident at a price that allows it to make a profit given the probability set for accidents. Clients pay to ensure that if anything happens, their loss will not be as significant. A deductible ensure that the client has ...

Solution Summary

Prisoners' Dilemma is explicated for microeconomic.

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The Prisoner's Dilemma and the Nash Equilibrium

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Case Assignment
Explain the Prisoner's Dilemma game, the notion of dominant strategy, and the concept of Nash equilibrium and cooperation. Using these concepts, then, analyze the following duopoly game.
Philip Morris and R.J. Reynolds spend huge sums of money each year to advertise their tobacco products in an attempt to steal customers from each other. Suppose each year Philip Morris and R.J. Reynolds have to decide whether or not they want to spend money on advertising. If neither firm advertises, each will earn a profit of $2 million. If they both advertise, each will earn a profit of $1.5 million. If one firm advertises and the other does not, the firm that advertises will earn a profit of $2.8 million and the other firm will earn $1 million.
• If the two companies decide to collude to maximize profits, what will each company do? What profit will each company earn?
• What is the dominant strategy for each company, and what profit will each company earn if they follow those strategies?
• Is the solution you found in the first question a Nash equilibrium?
• Is the solution you found in the second question a Nash equilibrium?
Assignment Expectations
In the Case Assignment, you are expected to:
• Describe the purpose of the paper and provide a conclusion.
• Present information in a professional manner.
• Answer the Case Assignment questions clearly and provide necessary details.
• Write clearly and correctly—that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.
• Provide citations to support your argument and place references on a separate page. (All the sources that you listed in the references section must be cited in the paper.) Use APA format to provide citations and references [http://owl.english.purdue.edu/owl/resource/560/01/].
• Type and double-space the paper.
• Whenever appropriate, please use Excel to show supporting computations in an appendix, present economic information in tables, and use the data to answer follow-up questions.

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