If Two Firms That Form a Cartel Agreement Are in a Prisoner's

question 129

Multiple Choice

If two firms that form a cartel agreement are in a prisoner's dilemma game, then

• A)both firms will have an incentive to break the agreement.
• B)only one firm will have an incentive to break the agreement.
• C)both firms will be better off if they hold to the agreement than if they break it.
• D)a and c
• E)b and c

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Definitions:

Economic Profits

The surplus or profit gained by a firm after subtracting all its costs, including both explicit and implicit costs, from its total revenues.

Accounting Profits

The net income for a company calculated by subtracting total expenses from total revenues, according to standard accounting practices.

Short Run

A period of time in economics during which at least one input, such as plant size, is fixed and cannot be changed.

Fixed Costs

Expenses that do not change with the level of output produced, such as rent, salaries, and insurance.