Consider an Example of the Prisoner's Dilemma Where 2 Firms

question 84

Multiple Choice

Consider an example of the prisoner's 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 non- cooperative outcome in this situation is

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

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Definitions:

Net Transfers

Financial or in-kind transactions without a direct quid pro quo, often seen in government budgets or international aid.

Net Investment Income

The profit gained from investment activities after subtracting all related expenses, such as fees and taxes.

Assets Abroad

Financial holdings or investments located in foreign countries, outside of an investor's home country.

Current Account Deficit

A measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports.