A Prisoner's Dilemma Is a Situation in Which

question 198

Multiple Choice

A prisoner's dilemma is a situation in which

• A)a change in marginal cost may not lead to a change in price
• B)a firm's competitors follow a price increase but ignore a price decrease
• C)oligopolists behave irrationally
• D)oligopolists attempt to maximize sales rather than profits
• E)an oligopolists demand curve may become perfectly inelastic

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Definitions:

Marginal Social Cost

The complete expense incurred by society to produce an extra unit of a product, incorporating both individual costs and external effects.

Marginal Social Benefit

The additional benefit to society as a whole from producing one extra unit of a good or service.

Optimal Quantity

The amount of a product or service that maximizes efficiency, balancing costs and benefits to achieve the best possible outcome.

Optimal Tax Rate

The tax rate that efficiently balances revenue generation for government purposes with minimal economic distortion or disincentive for economic activity.