Consider an Example of the Prisonerʹs Dilemma Where 2 Firms

question 118

Multiple Choice

Consider an example of the prisonerʹs dilemma where 2 firms are making sealed bids on a
Highway-construction contract and each firm is allowed to bid either $100 million or $120 million. If both firms bid the same price, the job is shared equally and each firm earns half the value of its bid. Otherwise the lowest bidder wins the contract and receives the full value of its bid and the other bidder earns zero) . The cooperative outcome in this situation is

• A) both firms bid $50 million.
• B) both firms bid $60 million.
• C) one firm bids $100 million, the other firm bids $120 million.
• D) both firms bid $100 million.
• E) both firms bid $120 million.

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Definitions:

Substitute Goods

Products or services that can be used in place of each other by consumers.

Price of Oil

The amount of money required to purchase a barrel of oil, influenced by global supply and demand, geopolitical events, and other factors.

Natural Gas

Natural gas is a fossil fuel consisting mainly of methane and other hydrocarbons, used as a source of energy for heating, cooking, and electricity generation.

Demand Curve

A visual chart that depicts the correlation between a product's price and the amount consumers are willing to buy.